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Oil and U.S. GDP: A Real‐Time Out‐of‐Sample Examination

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  • FRANCESCO RAVAZZOLO
  • PHILIP ROTHMAN

Abstract

We study the real-time Granger-causal relationship between crude oil prices and US GDP growth through a simulated out-of-sample (OOS) forecasting exercise; we also provide strong evidence of in-sample predictability from oil prices to GDP. Comparing our benchmark model "without oil" against alternatives "with oil," we strongly reject the null hypothesis of no OOS predictability from oil prices to GDP via our point forecast comparisons from the mid-1980s through the Great Recession. Further analysis shows that these results may be due to our oil price measures serving as proxies for a recently developed measure of global real economic activity omitted from the alternatives to the benchmark forecasting models in which we only use lags of GDP growth. By way of density forecast OOS comparisons, we find evidence of such oil price predictability for GDP for our full 1970-2009 OOS period. Examination of the density forecasts reveals a massive increase in forecast uncertainty following the 1973 post-Yom Kippur War crude oil price increases.

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File URL: http://hdl.handle.net/10.1111/jmcb.12009
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 45 (2013)
Issue (Month): 2-3 (03)
Pages: 449-463

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Handle: RePEc:mcb:jmoncb:v:45:y:2013:i:2-3:p:449-463

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Ron Alquist & Lutz Kilian & Robert J. Vigfusson, 2011. "Forecasting the price of oil," International Finance Discussion Papers 1022, Board of Governors of the Federal Reserve System (U.S.).
  2. Kilian, Lutz & Vigfusson, Robert J., 2012. "Do Oil Prices Help Forecast U.S. Real GDP? The Role of Nonlinearities and Asymmetries," CEPR Discussion Papers 8980, C.E.P.R. Discussion Papers.
  3. Baumeister, Christiane & Kilian, Lutz, 2011. "Real-Time Forecasts of the Real Price of Oil," CEPR Discussion Papers 8414, C.E.P.R. Discussion Papers.
  4. Granziera, Eleonora & Hubrich, Kirstin & Moon, Hyungsik Roger, 2013. "A predictability test for a small number of nested models," Working Paper Series 1580, European Central Bank.
  5. James D. Hamilton, 2012. "Oil Prices, Exhaustible Resources, and Economic Growth," NBER Working Papers 17759, National Bureau of Economic Research, Inc.
  6. Claudio Morana, 2012. "The Oil price-Macroeconomy Relationship since the Mid- 1980s: A global perspective," Working Papers 2012.28, Fondazione Eni Enrico Mattei.
  7. Fan, Qinbin & Jahan-Parvar, Mohammad R., 2009. "US Industry-Level Returns and Oil Prices," MPRA Paper 15670, University Library of Munich, Germany.
  8. Hamilton, James D., 2011. "Nonlinearities And The Macroeconomic Effects Of Oil Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 364-378, November.

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