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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce

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Volume 20, Issue 4 (Sep 2016)

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Oil-price density forecasts of US GDP

Francesco Ravazzolo
  • Free University of Bozen-Bolzano, Faculty of Economics and Management, 39100 Bozen-Bolzano, Italy
/ Philip Rothman
  • Corresponding author
  • Brewster A-424, Department of Economics East, Carolina University, Greenville, NC 27858-4353, USA, Phone: (252) 328-6151
  • Email:
Published Online: 2016-06-11 | DOI: https://doi.org/10.1515/snde-2015-0116

Abstract

We carry out a pseudo out-of-sample density forecasting study for US GDP with an autoregressive benchmark and alternatives to the benchmark that include both oil prices and stochastic volatility. The alternatives to the benchmark produce superior density forecasts. This comparative density performance appears to be driven more by stochastic volatility than by oil prices, and it primarily occurs outside of the great recession. We use our density forecasts to compute a recession risk indicator around the great recession. The alternative model with the real price of oil generates the earliest strong signal of a recession; but it surprisingly indicates reduced recession immediately after the Lehman Brothers bankruptcy. Use of the “net oil-price increase” nonlinear transformation of oil prices does lead to warnings of highly elevated risk during the Great Recession.

This article offers supplementary material which is provided at the end of the article.

Keywords: business cycle; density forecasts; GDP; oil prices

JEL Classification: C22; C53; E32; E37

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About the article

Published Online: 2016-06-11

Published in Print: 2016-09-01


Citation Information: Studies in Nonlinear Dynamics & Econometrics, ISSN (Online) 1558-3708, ISSN (Print) 1081-1826, DOI: https://doi.org/10.1515/snde-2015-0116.

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