Real-time Forecast Combinations for the Oil Price

| Publication date: 12 Oct 2018 | Theme: Macroeconomics | External Author(s): Garratt, A, Vahey, S P, Zhang, Y | JEL Classification: C01, C32, C53 | NIESR Discussion Paper Number: 494

Baumeister and Kilian (2015) combine forecasts from six empirical models to predict real oil prices. In this paper, we broadly reproduce their main economic findings, employing their preferred measures of the real oil price and other real-time variables. Mindful of the importance of Brent crude oil as a global price benchmark, we extend consideration to the North Sea based measure and update the evaluation sample to 2017:12. We model the oil price futures curve using a factor-based Nelson-Siegel specification estimated in real time to fill in missing values for oil price futures in the raw data. We find that the combined forecasts for Brent are as effective as for other oil price measures. The extended sample using the oil price measures adopted by Baumeister and Kilian (2015) yields similar results to those reported in their paper. And the futures-based model improves forecast accuracy at longer horizons. The real-time data set is available for download from https://www.niesr.ac.uk/real-time-forecast-combinations-oil-price

Keyword tags: 
Real oil price forecasting
Brent crude oil
Forecast combination
Publication type: 

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