Forecasting energy commodity prices: a large global dataset sparse approach

Davide Ferrari (), Francesco Ravazzolo and Joaquin Vespignani
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Davide Ferrari: Free University of Bozen-Bolzano, Faculty of Economics and Management, Italy, https://www.unibz.it/en/faculties/economics-management/academic-staff/person/39001-davide-ferrari

No 2019-09, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: This paper focuses on forecasting quarterly energy prices of commodities, such as oil, gas and coal, using the Global VAR dataset proposed by Mohaddes and Raissi (2018). This dataset includes a number of potentially informative quarterly macroeconomic variables for the 33 largest economies, overall accounting for more than 80% of the global GDP. To deal with the information on this large database, we apply a dynamic factor model based on a penalized maximum likelihood approach that allows to shrink parameters to zero and to estimate sparse factor loadings. The estimated latent factors show considerable sparsity and heterogeneity in the selected loadings across variables. When the model is extended to predict energy commodity prices up to four periods ahead, results indicate larger predictability relative to the benchmark random walk model for 1-quarter ahead for all energy commodities. In our application, the largest improvement in terms of prediction accuracy is observed when predicting gas prices from 1 to 4 quarters ahead.

Keywords: energy prices; forecasting; Dynamic Factor model; sparse esti- mation; penalized maximum likelihood (search for similar items in EconPapers)
JEL-codes: C1 C5 C8 E3 Q4 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2019
New Economics Papers: this item is included in nep-ene, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published by the University of Tasmania. Discussion paper 2019-09

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Related works:
Journal Article: Forecasting energy commodity prices: A large global dataset sparse approach (2021)
Working Paper: Forecasting Energy Commodity Prices: A Large Global Dataset Sparse Approach (2021)
Working Paper: Forecasting Energy Commodity Prices: A Large Global Dataset Sparse Approach (2019)
Working Paper: Forecasting energy commodity prices: A large global dataset sparse approach (2019)
Working Paper: Forecasting Energy Commodity Prices: A Large Global Dataset Sparse Approach (2019)
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