Modelling and Forecasting Oil Prices: The Role of Asymmetric Cycles
Economics and Statistics Working Paper No. 2007-22
18 Pages Posted: 25 Oct 2007
Date Written: 2007
We propose a new time series model aimed at forecasting crude oil prices. The proposed specification is an unobserved components model with an asymmetric cyclical component. The asymmetric cycle is defined as a sine-cosine wave where the frequency of the cycle depends on past oil price observations. We show that oil price forecasts improve significantly when this asymmetry is explicitly modelled.
Keywords: Oil price, forecasting, nonlinear time series analysis, asymmetric cycles
JEL Classification: C22, O13, C53
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