Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73985
Authors: 
Manera, Matteo
Longo, Chiara
Markandya, Anil
Scarpa, Elisa
Year of Publication: 
2007
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 4.2007
Abstract: 
The relevance of oil in the world economy explains why considerable effort has been devoted to the development of different types of econometric models for oil price forecasting. Several specifications have been proposed in the economic literature. Some are based on financial theory and concentrate on the relationship between spot and futures prices (“financial” models). Others assign a key role to variables explaining the characteristics of the physical oil market (“structural” models). The empirical literature is very far from any consensus about the appropriate model for oil price forecasting that should be implemented. Relative to the previous literature, this paper is novel in several respects. First of all, we test and systematically evaluate the ability of several alternative econometric specifications proposed in the literature to capture the dynamics of oil prices. Second, we analyse the effects of different data frequencies on the coefficient estimates and forecasts obtained using each selected econometric specification. Third, we compare different models at different data frequencies on a common sample and common data. Fourth, we evaluate the forecasting performance of each selected model using static and dynamic forecasts, as well as different measures of forecast errors. Finally, we propose a new class of models which combine the relevant aspects of the financial and structural specifications proposed in the literature (“mixed” models). Our empirical findings can be summarized as follows. Financial models in levels do not produce satisfactory forecasts for the WTI spot price. The financial error correction model yields accurate in-sample forecasts. Real and strategic variables alone are insufficient to capture the oil spot price dynamics in the forecasting sample. Our proposed mixed models are statistically adequate and exhibit accurate forecasts. Different data frequencies seem to affect the forecasting ability of the models under analysis.
Subjects: 
Oil Price
WTI Spot And Futures Prices
Forecasting
Econometric Models
JEL: 
C52
C53
Q32
Q43
Document Type: 
Working Paper

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