Oil and US GDP: A Real-Time Out-of-Sample Examination

26 Pages Posted: 21 Sep 2010

See all articles by Francesco Ravazzolo

Francesco Ravazzolo

Free University of Bozen-Bolzano - Faculty of Economics and Management; BI Norwegian Business School

Philip Rothman

East Carolina University

Multiple version iconThere are 2 versions of this paper

Date Written: September 20, 2010


We study the real-time Granger-causal relationship between crude oil prices and US GDP growth through a simulated out-of-sample (OOS) forecasting exercise; we also provide strong evidence of in-sample predictability from oil prices to GDP. Comparing our benchmark model "without oil" against alternatives "with oil," we strongly reject the null hypothesis of no OOS predictability from oil prices to GDP via our point forecast comparisons from the mid-1980s through the Great Recession. Further analysis shows that these results may be due to our oil price measures serving as proxies for a recently developed measure of global real economic activity omitted from the alternatives to the benchmark forecasting models in which we only use lags of GDP growth. By way of density forecast OOS comparisons, we find evidence of such oil price predictability for GDP for our full 1970-2009 OOS period. Examination of the density forecasts reveals a massive increase in forecast uncertainty following the 1973 post-Yom Kippur War crude oil price increases.

Keywords: Oil prices, GDP, Granger causality, Forecasting

JEL Classification: C22, C53, E32, E37

Suggested Citation

Ravazzolo, Francesco and Rothman, Philip, Oil and US GDP: A Real-Time Out-of-Sample Examination (September 20, 2010). Available at SSRN: https://ssrn.com/abstract=1680110 or http://dx.doi.org/10.2139/ssrn.1680110

Francesco Ravazzolo

Free University of Bozen-Bolzano - Faculty of Economics and Management ( email )

Via Sernesi 1
39100 Bozen-Bolzano (BZ), Bozen 39100

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442

HOME PAGE: http://www.francescoravazzolo.com/

Philip Rothman (Contact Author)

East Carolina University ( email )

Dept of Economics
Brewster Building
Greenville, NC 27858
United States

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