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Forecasting Commodity Prices: Looking for a Benchmark

Marek Kwas () and Michał Rubaszek ()
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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
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