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Mon, 16 Dec 2013 09:22:49 +0100Mon, 16 Dec 2013 09:22:49 +0100Do high-frequency financial data help forecast oil
prices? The MIDAS touch at work
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32499
The substantial variation in the real price of oil since 2003 has renewed interest in the question of how to forecast monthly and quarterly oil prices. There also has been increased interest in the link between financial markets and oil markets, including the question of whether financial market information helps forecast the real price of oil in physical markets. An obvious advantage of financial data in forecasting oil prices is their availability in real time on a daily or weekly basis. We investigate whether mixed-frequency models may be used to take advantage of these rich data sets. We show that, among a range of alternative high-frequency predictors, especially changes in U.S. crude oil inventories produce substantial and statistically significant real-time improvements in forecast accuracy. The preferred MIDAS model reduces the MSPE by as much as 16 percent compared with the no-change forecast and has statistically significant directional accuracy as high as 82 percent. This MIDAS forecast also is more accurate than a mixed-frequency realtime VAR forecast, but not systematically more accurate than the corresponding forecast based on monthly inventories. We conclude that typically not much is lost by ignoring high-frequency financial data in forecasting the monthly real price of oil.Christiane Baumeister; Pierre Guérin; Lutz Kilianworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32499Mon, 16 Dec 2013 09:22:49 +0100Forecasting the real price of oil in a changing world:
a forecast combination approach
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32488
The U.S. Energy Information Administration (EIA) regularly publishes monthly and quarterly forecasts of the price of crude oil for horizons up to two years, which are widely used by practitioners. Traditionally, such out-of-sample forecasts have been largely judgmental, making them difficult to replicate and justify. An alternative is the use of real-time econometric oil price forecasting models. We investigate the merits of constructing combinations of six such models. Forecast combinations have received little attention in the oil price forecasting literature to date. We demonstrate that over the last 20 years suitably constructed real-time forecast combinations would have been systematically more accurate than the no-change forecast at horizons up to 6 quarters or 18 months. MSPE reduction may be as high as 12% and directional accuracy as high as 72%. The gains in accuracy are robust over time. In contrast, the EIA oil price forecasts not only tend to be less accurate than no-change forecasts, but are much less accurate than our preferred forecast combination. Moreover, including EIA forecasts in the forecast combination systematically lowers the accuracy of the combination forecast. We conclude that suitably constructed forecast combinations should replace traditional judgmental forecasts of the price of oil.Christiane Baumeister; Lutz Kilianworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32488Fri, 13 Dec 2013 09:20:37 +0100Are product spreads useful for forecasting? An empirical evaluation of the Verleger hypothesis
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32486
Notwithstanding a resurgence in research on out-of-sample forecasts of the price of oil in recent years, there is one important approach to forecasting the real price of oil which has not been studied systematically to date. This approach is based on the premise that demand for crude oil derives from the demand for refined products such as gasoline or heating oil. Oil industry analysts such as Philip Verleger and financial analysts widely believe that there is predictive power in the product spread, defined as the difference between suitably weighted refined product market prices and the price of crude oil. Our objective is to evaluate this proposition. We derive from first principles a number of alternative forecasting model specifications involving product spreads and compare these models to the no-change forecast of the real price of oil. We show that not all product spread models are useful for out-of-sample forecasting, but some models are, even at horizons between one and two years. The most accurate model is a time-varying parameter model of gasoline and heating oil spot spreads that allows the marginal product market to change over time. We document MSPE reductions as high as 20% and directional accuracy as high as 63% at the two-year horizon, making product spread models a good complement to forecasting models based on economic fundamentals, which work best at short horizons.Christiane Baumeister; Lutz Kilian; Xiaoqing Zhouworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/32486Fri, 13 Dec 2013 09:18:46 +0100Atypical behavior of credit: evidence from a monetary VAR
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/30583
Credit boom detection methodologies (such as threshold method) lack robustness as they are based on univariate detrending analysis and resort to ratios of credit to real activity. I propose a quantitative indicator to detect atypical behavior of credit from a multivariate system - a monetary VAR. This methodology explicitly accounts for endogenous interactions between credit, asset prices and real activity and detects atypical credit expansions and contractions in the Euro Area, Japan and the U.S. robustly and timely. The analysis also proves useful in real time.Elena Afanasyevaworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/30583Fri, 28 Jun 2013 13:56:40 +0200Forecasting and policy making
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/26875
Volker Wieland; Maik Hendrik Woltersworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/26875Wed, 07 Nov 2012 17:12:25 +0100Evaluating point and density forecasts of DSGE models
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/26872
This paper investigates the accuracy of point and density forecasts of four DSGE models for inflation, output growth and the federal funds rate. Model parameters are estimated and forecasts are derived successively from historical U.S. data vintages synchronized with the Fed’s Greenbook projections. Point forecasts of some models are of similar accuracy as the forecasts of nonstructural large dataset methods. Despite their common underlying New Keynesian modeling philosophy, forecasts of different DSGE models turn out to be quite distinct. Weighted forecasts are more precise than forecasts from individual models. The accuracy of a simple average of DSGE model forecasts is comparable to Greenbook projections for medium term horizons. Comparing density forecasts of DSGE models with the actual distribution of observations shows that the models overestimate uncertainty around point forecasts.Maik Hendrik Woltersworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/26872Wed, 07 Nov 2012 17:01:50 +0100Predicting recessions with interest rate spreads : a multicountry regime-switching analysis
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4529
This study uses Markov-switching models to evaluate the informational content of the term structure as a predictor of recessions in eight OECD countries. The empirical results suggest that for all countries the term spread is sensibly modelled as a two-state regime-switching process. Moreover, our simple univariate model turns out to be a filter that transforms accurately term spread changes into turning point predictions. The term structure is confirmed to be a reliable recession indicator. However, the results of probit estimations show that the markov-switching filter does not significantly improve the forecasting ability of the spread.Ralf Ahrensworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4529Mon, 13 Jun 2005 08:58:01 +0200Improving market-based forecasts of short-term interest rates : time-varying stationarity and the predictive content of switching regime-expectations
http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4528
Modeling short-term interest rates as following regime-switching processes has become increasingly popular. Theoretically, regime-switching models are able to capture rational expectations of infrequently occurring discrete events. Technically, they allow for potential time-varying stationarity. After discussing both aspects with reference to the recent literature, this paper provides estimations of various univariate regime-switching specifications for the German three-month money market rate and bivariate specifications additionally including the term spread. However, the main contribution is a multi-step out-of-sample forecasting competition. It turns out that forecasts are improved substantially when allowing for state-dependence. Particularly, the informational content of the term spread for future short rate changes can be exploited optimally within a multivariate regime-switching framework.Ralf Ahrensworkingpaperhttp://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4528Mon, 13 Jun 2005 08:57:45 +0200