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LONG-TERM OIL PRICE FORECASTS: A NEW PERSPECTIVE ON OIL AND THE MACROECONOMY

Published online by Cambridge University Press:  14 December 2011

J. Isaac Miller  and
Shawn Ni
J. Isaac Miller*
Affiliation:
University of Missouri
Shawn Ni
Affiliation:
University of Missouri
*
Address correspondence to: J. Isaac Miller, 118 Professional Building, Department of Economics, University of Missouri, Columbia, MO 65211, USA; e-mail: millerjisaac@missouri.edu.
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Abstract

We examine how future real GDP growth relates to changes in the forecasted long-term average of discounted real oil prices and to changes in unanticipated fluctuations of real oil prices around the forecasts. Forecasts are conducted using a state-space oil market model, in which global real economic activity and real oil prices share a common stochastic trend. Changes in unanticipated fluctuations and changes in the forecasted long-term average of discounted real oil prices sum to real oil price changes. We find that these two components have distinctly different relationships with future real GDP growth. Positive and negative changes in the unanticipated fluctuations of real oil prices correlate with asymmetric responses of future real GDP growth. In comparison, changes in the forecasted long-term average are smaller in magnitude but are more influential on real GDP. Persistent upward revisions of forecasts in the 2000s had a substantial negative impact on real GDP growth, according to our estimates.

Keywords

Oil Price and the MacroeconomyOil Price ForecastsKalman Filter
Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Supplement S3: Oil Price Shocks , November 2011 , pp. 396 - 415
Copyright
Copyright © Cambridge University Press 2011

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