Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154168
Authors: 
Belu Mănescu, Cristiana
Van Robays, Ine
Year of Publication: 
2014
Series/Report no.: 
ECB Working Paper 1735
Abstract: 
This paper demonstrates how the real-time forecasting accuracy of different Brent oil price forecast models changes over time. We find considerable instability in the performance of all models evaluated and argue that relying on average forecasting statistics might hide important information on a model`s forecasting properties. To address this instability, we propose a forecast combination approach to predict quarterly real Brent oil prices. A four-model combination (consisting of futures, risk-adjusted futures, a Bayesian VAR and a DGSE model of the oil market) predicts Brent oil prices more accurately than the futures and the random walk up to 11 quarters ahead, on average, and generates a forecast whose performance is remarkably robust over time. In addition, the model combination reduces the forecast bias and predicts the direction of the oil price changes more accurately than both benchmarks.
Subjects: 
Brent oil prices
central banks
forecast combination
real-time
time-variation
JEL: 
Q43
C43
E32
ISBN: 
978-92-899-1143-6
Document Type: 
Working Paper

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