Consider the following scenario. You are a member of the Monetary Policy Committee for Paraguay. The staff of the Bank of Paraguay has just produced a forecast of inflation in Paraguay for you. If inflation gets too high, you must tighten monetary policy If inflation gets too low, you must loosen monetary policy. As the country has a history of hyperinflation, you are most worried about inflation being too high. The Monetary Policy Committee must establish its own credibility at all costs by avoiding hyperinflation. As such, the Committee would rather that you gave them forecasts of inflation that are too high than forecasts that are too low. The appropriate loss function is: Asymmetric with higher penalties for forecasting inflation that is too high Symmetric with equal penalties for forecasting inflation that is too high or too low Asymmetric with lower penalties for forecasting inflation that is too high Symmetric with higher penalties for forecasting inflation that is too low