Forecasting the real price of oil in a changing world: a forecast combination approach : [Version November 13, 2013]

  • 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.

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Metadaten
Author:Christiane BaumeisterORCiDGND, Lutz KilianGND
URN:urn:nbn:de:hebis:30:3-324888
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2013,11
Series (Serial Number):CFS working paper series (2013, 11)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Year of Completion:2013
Year of first Publication:2013
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2013/12/13
Tag:forecast combination; model misspecification; oil price; real-time data; structural change
Issue:Version November 13, 2013
Page Number:36
HeBIS-PPN:349915490
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:C Mathematical and Quantitative Methods / C5 Econometric Modeling / C53 Forecasting and Other Model Applications
Sammlungen:Universit├Ątspublikationen
Licence (German):License LogoDeutsches Urheberrecht