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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| Authors: | LANCE BACHMEIER QI LI DANDAN LIU |
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| Institution: | 1. Bachmeier: Assistant Professor, Department of Economics, Kansas State University, Manhattan, KS 66506. Phone 785‐532‐4578, Fax 785‐532‐6919, E‐mail lanceb@ksu.edu;2. We wish to thank John Chao, Lutz Kilian, Norm Swanson, an anonymous referee, and the editor, Dennis Jansen, for many helpful comments. We are especially grateful to Phil Rothman for suggesting this topic.;3. Li: Professor, Department of Economics, Texas A&M University, College Station, TX 77843‐4228. Phone 979‐845‐9954, Fax 979‐847‐8757, E‐mail qi@econmail.tamu.edu;4. and Department of Economics, Tsinghua University, Beijing 100084, P.R. China.;5. Liu: Assistant Professor, Department of Economics, Bowling Green State University, Bowling Green, OH 43403‐0001. Phone 419‐372‐4879, Fax 419‐372‐1557, E‐mail dliu@bgsu.edu |
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| 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) |
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