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Oil-price density forecasts of US GDP

Oil-price density forecasts of US GDP AbstractWe carry out a pseudo out-of-sample density forecasting study for US GDP with an autoregressive benchmark and alternatives to the benchmark that include both oil prices and stochastic volatility. The alternatives to the benchmark produce superior density forecasts. This comparative density performance appears to be driven more by stochastic volatility than by oil prices, and it primarily occurs outside of the great recession. We use our density forecasts to compute a recession risk indicator around the great recession. The alternative model with the real price of oil generates the earliest strong signal of a recession; but it surprisingly indicates reduced recession immediately after the Lehman Brothers bankruptcy. Use of the “net oil-price increase” nonlinear transformation of oil prices does lead to warnings of highly elevated risk during the Great Recession. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Nonlinear Dynamics & Econometrics de Gruyter

Oil-price density forecasts of US GDP

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Publisher
de Gruyter
Copyright
©2016 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1558-3708
eISSN
1558-3708
DOI
10.1515/snde-2015-0116
Publisher site
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Abstract

AbstractWe carry out a pseudo out-of-sample density forecasting study for US GDP with an autoregressive benchmark and alternatives to the benchmark that include both oil prices and stochastic volatility. The alternatives to the benchmark produce superior density forecasts. This comparative density performance appears to be driven more by stochastic volatility than by oil prices, and it primarily occurs outside of the great recession. We use our density forecasts to compute a recession risk indicator around the great recession. The alternative model with the real price of oil generates the earliest strong signal of a recession; but it surprisingly indicates reduced recession immediately after the Lehman Brothers bankruptcy. Use of the “net oil-price increase” nonlinear transformation of oil prices does lead to warnings of highly elevated risk during the Great Recession.

Journal

Studies in Nonlinear Dynamics & Econometrics – de Gruyter

Published: Sep 1, 2016

References

  • Oil and the Macroeconomy Since World War II
  • Comparing Predictive Accuracy
  • Future Recession Risks: An Update
  • Oil Price Shocks, Monetary Policy and Stagflation
  • The Central Banker as a Risk Manager: Estimating the Federal Reserve’s Preferences Under Greenspan
  • This is What Happened to the Oil Price-Macroeconomy Relationship
  • The Central Banker as a Risk Manager: Estimating the Federal Reserve’s Preferences Under Greenspan
  • Central Bank Macroeconomic Forecasting During the Global Financial Crisis: The European Central Bank and Federal Reserve Bank of New York Experiences
  • Oil Price Shocks, Monetary Policy and Stagflation
  • This is What Happened to the Oil Price-Macroeconomy Relationship
  • Systematic Monetary Policy and The Effects of Oil Price Shocks
  • Are the Responses of the U.S. Economy Asymmetric in Energy Price Increases and Decreases?
  • Time Varying Structural Vector Autoregressions and Monetary Policy
  • Stochastic Volatility with Leverage: Fast and Efficient Likelihood Inference
  • Comparing Predictive Accuracy
  • What is an Oil Shock?