Forecasting Commodity Prices: GARCH, Jumps, and Mean Reversion
Jean-Thomas Bernard (),
Lynda Khalaf (),
Maral Kichian and
Staff Working Papers from Bank of Canada
Fluctuations in the prices of various natural resource products are of concern in both policy and business circles; hence, it is important to develop accurate price forecasts. Structural models provide valuable insights into the causes of price movements, but they are not necessarily the best suited for forecasting given the multiplicity of known and unknown factors that affect supply and demand conditions in these markets. Parsimonious representations of price processes often prove more useful for forecasting purposes. Central questions in such stochastic models often revolve around the time-varying trend, the stochastic convenience yield and volatility, and mean reversion. The authors seek to assess and compare alternative approaches to modelling these effects, focusing on forecast performance. Three econometric specifications are considered that cover the most up-to-date models in the recent literature on commodity prices: (i) random-walk models with autoregressive conditional heteroscedasticity (ARCH) or generalized ARCH (GARCH) effects, and with normal or student-t innovations, (ii) Poisson-based jump-diffusion models with ARCH or GARCH effects, and with normal or student-t innovations, and (iii) meanreverting models that allow for uncertainty in equilibrium price.
Keywords: Econometric; and; statistical; methods (search for similar items in EconPapers)
JEL-codes: C52 C53 E37 (search for similar items in EconPapers)
Pages: 21 pages
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Journal Article: Forecasting commodity prices: GARCH, jumps, and mean reversion (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:06-14
Access Statistics for this paper
More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().