Oil Price Forecastability and Economic Uncertainty
12 Pages Posted: 6 Apr 2015
Date Written: April 4, 2015
Information on economic policy uncertainty (EPU) does matter in predicting oil returns especially when accounting for omitted nonlinearities in the relationship between these two variables via a time-varying coefficient approach. In this work, we compare the forecastability of standard, Bayesian and TVP-VAR models against the random-walk and benchmark AR models. Our results indicate that over the period 1900:1-2014:2 the time-varying VAR model with stochastic volatility outranks all alternative models.
Keywords: Oil prices, economic policy uncertainty, forecasting
JEL Classification: C22, C32, C53, E60, Q41
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