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Forecasting oil prices: Can large BVARs help?

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  • Zhang, Bo
  • Nguyen, Bao H.
  • Sun, Chuanwang

Abstract

Large Bayesian vector autoregression (BVAR) is a successful tool for forecasting macroeconomic variables, but the benefits to predict crude oil prices are rarely discussed. In this paper, we test the ability of BVAR to predict the real price of crude oil using a large dataset with 108 variables, taking into account all potential error structures that could affect modeling and forecasting, and performing multivariate analysis of crude oil prices, filling in the gaps in the field. The results demonstrated that the large BVAR having an excellent out-of-sample forecast performance at long horizons. Small and medium sizes BVAR provide more accurate information for short forecast horizons. We also find that the advantages of utilizing a large dataset become more obvious when incorporating non-standard error terms.

Suggested Citation

  • Zhang, Bo & Nguyen, Bao H. & Sun, Chuanwang, 2024. "Forecasting oil prices: Can large BVARs help?," Energy Economics, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:eneeco:v:137:y:2024:i:c:s0140988324005139
    DOI: 10.1016/j.eneco.2024.107805
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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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