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Long-Term Oil Price Forecasts: A New Perspective On Oil And The Macroeconomy

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  • Miller, J. Isaac
  • Ni, Shawn

Abstract

We examine how future real GDP growth relates to changes in the forecasted long-term average of discounted real oil prices and to changes in unanticipated fluctuations of real oil prices around the forecasts. Forecasts are conducted using a state-space oil market model, in which global real economic activity and real oil prices share a common stochastic trend. Changes in unanticipated fluctuations and changes in the forecasted long-term average of discounted real oil prices sum to real oil price changes. We find that these two components have distinctly different relationships with future real GDP growth. Positive and negative changes in the unanticipated fluctuations of real oil prices correlate with asymmetric responses of future real GDP growth. In comparison, changes in the forecasted long-term average are smaller in magnitude but are more influential on real GDP. Persistent upward revisions of forecasts in the 2000s had a substantial negative impact on real GDP growth, according to our estimates..

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 15 (2011)
Issue (Month): S3 (November)
Pages: 396-415

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Handle: RePEc:cup:macdyn:v:15:y:2011:i:s3:p:396-415_00

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  1. Noud P.A. van Giersbergen & Jan F. Kiviet, 2001. "How to implement the Bootstrap in Static or Stable Dynamic Regression Models," Tinbergen Institute Discussion Papers 01-119/4, Tinbergen Institute.
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Cited by:
  1. Claudio Morana, 2012. "The Oil price-Macroeconomy Relationship since the Mid- 1980s: A global perspective," Working Papers 2012.28, Fondazione Eni Enrico Mattei.
  2. Ratti, Ronald & Vespignani, Joaquin, 2012. "Liquidity and crude oil prices: China’s influence over 1996-2011," Working Papers 15062, University of Tasmania, School of Economics and Finance, revised 20 Sep 2012.
  3. Richard A. Ashley & Kwok Ping Tsang, 2013. "Credible Granger-Causality Inference with Modest Sample Lengths: A Cross-Sample Validation Approach," Working Papers e07-41, Virginia Polytechnic Institute and State University, Department of Economics.
  4. Ratti, Ronald A & Vespignani, Joaquin L., 2012. "Crude Oil Prices: China’s Influence Over 1996-2011," Working Papers 15728, University of Tasmania, School of Economics and Finance, revised 17 Dec 2012.
  5. J. Isaac Miller, 2012. "Mixed-frequency Cointegrating Regressions with Parsimonious Distributed Lag Structures," Working Papers 1211, Department of Economics, University of Missouri.
  6. Zhang, Chuanguo & Chen, Xiaoqing, 2014. "The impact of global oil price shocks on China’s bulk commodity markets and fundamental industries," Energy Policy, Elsevier, vol. 66(C), pages 32-41.

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