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Improving Oil Price Forecasts by Sparse VAR Methods

Krüger, Jens and Ruths Sion, Sebastian (2019):
Improving Oil Price Forecasts by Sparse VAR Methods.
In: Darmstadt Discussion Papers in Economics, 237, ISSN 1438-2733,
DOI: 10.25534/tuprints-00009643,
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Item Type: Report
Title: Improving Oil Price Forecasts by Sparse VAR Methods
Language: English
Abstract:

In this paper we document the results of a forecast evaluation exercise for the real world price of crude oil using VAR models estimated by sparse (regularization) estimators. These methods have the property to constrain single parameters to zero. We find that estimating VARs with three core variables (real price of oil, index of global real economic activity, change in global crude oil production) by the sparse methods is associated with substantial reductions of forecast errors. The transformation of the variables (taking logs or differences) is also crucial. Extending the VARs by further variables is not associated with additonal gains in forecast performance as is the application of impulse indicator saturation before the estimation.

Series Name: Darmstadt Discussion Papers in Economics
Volume: 237
Classification DDC: 300 Sozialwissenschaften > 330 Wirtschaft
Divisions: 01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Emprical Economics
Date Deposited: 05 Dec 2019 12:57
Last Modified: 09 Jul 2020 02:58
DOI: 10.25534/tuprints-00009643
URN: urn:nbn:de:tuda-tuprints-96436
Additional Information:

JEL classification: C32, Q47

URI: https://tuprints.ulb.tu-darmstadt.de/id/eprint/9643
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