Handbook of Economic Forecasting

Chapter 8

Forecasting the Price of Oil

Ron Alquist^a, Lutz Kilian^b and Robert J. Vigfusson^c,     ^aBank of Canada, Ottawa, ON, Canada, ^bUniversity of Michigan, Ann Arbor, MI, USA, ^cFederal Reserve Board, Washington, DC, USA, ^bE-mail: [e-mail]

Abstract

We address some of the key questions that arise in forecasting the price of crude oil. What do applied forecasters need to know about the choice of sample period and about the tradeoffs between alternative oil price series and model specifications? Are real and nominal oil prices predictable based on macroeconomic aggregates? Does this predictability translate into gains in out-of-sample forecast accuracy compared with conventional no-change forecasts? How useful are oil futures prices in ...