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Should Oil Prices Receive So Much Attention? An Evaluation Of The Predictive Power Of Oil Prices For The U.S. Economy

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  • LANCE BACHMEIER
  • QI LI
  • DANDAN LIU

Abstract

This paper evaluates the potential gains from using oil prices to forecast a variety of measures of inflation, economic activity, and monetary policy–related variables. With a few exceptions, oil prices do not have any predictive content for these variables. This finding is robust to the use of rolling forecast windows, the use of industry‐level data, changes in the forecast horizon, and allowing for nonlinearities. (JEL Q43, E37, C32)

Suggested Citation

  • Lance Bachmeier & Qi Li & Dandan Liu, 2008. "Should Oil Prices Receive So Much Attention? An Evaluation Of The Predictive Power Of Oil Prices For The U.S. Economy," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 528-539, October.
    • Handle: RePEc:bla:ecinqu:v:46:y:2008:i:4:p:528-539
    DOI: 10.1111/j.1465-7295.2007.00095.x
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    More about this item

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • 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

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