On the Internal Consistency of Short-Term, Medium-Term, and Long-Term Oil Price Forecasts

We derive internal consistency restrictions on short-term, medium-term,and long-term oil price forecasts. We then analyze whether oil price forecasts extracted from the Survey of Professional Forecasters conducted by the European Central Bank satisfy these internal consistency restrictions. We find that neither short-term forecasts are consistent with medium-term forecasts nor that medium-term forecasts are consistent with long-term forecasts. Using a more complex expectation formation structure featuring a distributed lag structure, however, we find stronger evidence of internal consistency of medium-term forecasts with long-term forecasts.