Forecasts of the real price of oil revisited: Do they beat the random walk?

Reinhard Ellwanger and Stephen Snudden

Journal of Banking & Finance, 2023, vol. 154, issue C

Abstract: In macroeconomic forecasting, the real price of oil is traditionally computed as the monthly average price of oil deflated by the price index. Consequently, the no-change forecast used to benchmark forecasts of the real price of crude oil is a monthly average price. We demonstrate that an alternative no-change forecast which reflects the random walk forecast from daily oil prices – the end-of-month price – is significantly more accurate in predicting the real price of oil up to one year ahead. We find that at the one-step-ahead prediction, all existing forecasts that outperform the monthly average no-change forecast perform worse than the end-of-month no-change forecast. The results call into question the usefulness of existing forecasting approaches for the real price of crude oil relative to naive forecasts.

Keywords: Forecasting and prediction methods; Oil price forecast (search for similar items in EconPapers)
JEL-codes: C1 C43 C53 Q47 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623001619

DOI: 10.1016/j.jbankfin.2023.106962

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