Forecasting Commodity Prices: Looking for a Benchmark

Marek Kwas and Michał Rubaszek
Additional contact information
Marek Kwas: Collegium of Economic Analysis, SGH Warsaw School of Economics, 02-554 Warsaw, Poland

Forecasting, 2021, vol. 3, issue 2, 1-13

Abstract: The random walk, no-change forecast is a customary benchmark in the literature on forecasting commodity prices. We challenge this custom by examining whether alternative models are more suited for this purpose. Based on a literature review and the results of two out-of-sample forecasting experiments, we draw two conclusions. First, in forecasting nominal commodity prices at shorter horizons, the random walk benchmark should be supplemented by futures-based forecasts. Second, in forecasting real commodity prices, the random walk benchmark should be supplemented, if not substituted, by forecasts from the local projection models. In both cases, the alternative benchmarks deliver forecasts of comparable and, in many cases, of superior accuracy.

Keywords: commodity prices; commodity futures; mean-reversion; local projection; forecasting (search for similar items in EconPapers)
JEL-codes: A1 B4 C0 C1 C2 C3 C4 C5 C8 M0 Q2 Q3 Q4 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.mdpi.com/2571-9394/3/2/27/pdf (application/pdf)
https://www.mdpi.com/2571-9394/3/2/27/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jforec:v:3:y:2021:i:2:p:27-459:d:577877

Access Statistics for this article

Forecasting is currently edited by Ms. Joss Chen

More articles in Forecasting from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().