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Forecasting Oil Prices: Can Large BVARs Help?

Author

Listed:
  • Bao H. Nguyen
  • Bo Zhang

Abstract

Large Bayesian Vector Autoregressions (BVARs) have been a successful tool in the forecasting literature and most of this work has focused on macroeconomic variables. In this paper, we examine the ability of large BVARs to forecast the real price of crude oil using a large dataset with over 100 variables. We find consistent results that the large BVARs do not beat the BVARs with small and medium sizes for short forecast horizons but offer better forecasts at long horizons. In line with the forecasting macroeconomic literature, we also find that the forecast ability of the large models further improves upon the competing standard BVARs once endowed with flexible error structures.

Suggested Citation

  • Bao H. Nguyen & Bo Zhang, 2022. "Forecasting Oil Prices: Can Large BVARs Help?," CAMA Working Papers 2022-65, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2022-65
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2022-10/65_2022_nguyen_zhang.pdf
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    More about this item

    Keywords

    forecasting; non-Gaussian; stochastic volatility; oil prices; big data;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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