Oil-price density forecasts of US GDP

Francesco Ravazzolo and Philip Rothman ()

Studies in Nonlinear Dynamics & Econometrics, 2016, vol. 20, issue 4, 441-453

Abstract: We carry out a pseudo out-of-sample density forecasting study for US GDP with an autoregressive benchmark and alternatives to the benchmark that include both oil prices and stochastic volatility. The alternatives to the benchmark produce superior density forecasts. This comparative density performance appears to be driven more by stochastic volatility than by oil prices, and it primarily occurs outside of the great recession. We use our density forecasts to compute a recession risk indicator around the great recession. The alternative model with the real price of oil generates the earliest strong signal of a recession; but it surprisingly indicates reduced recession immediately after the Lehman Brothers bankruptcy. Use of the “net oil-price increase” nonlinear transformation of oil prices does lead to warnings of highly elevated risk during the Great Recession.

Keywords: business cycle; density forecasts; GDP; oil prices (search for similar items in EconPapers)
JEL-codes: C22 C53 E32 E37 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (14)

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Working Paper: Oil-Price Density Forecasts of U.S. GDP (2015)
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DOI: 10.1515/snde-2015-0116

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