Forecasting Commodity Prices: Looking for a Benchmark
The random walk, no-change forecast is a customary benchmark in the literature on forecasting commodity prices. We challenge this custom by examining whether alternative models are more suited for this purpose. Based on a literature review and the results of two out-of-sample forecasting experiments...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2021-06-01
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| Series: | Forecasting |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2571-9394/3/2/27 |
| _version_ | 1827689398157705216 |
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| author | Marek Kwas Michał Rubaszek |
| author_facet | Marek Kwas Michał Rubaszek |
| author_sort | Marek Kwas |
| collection | DOAJ |
| description | The random walk, no-change forecast is a customary benchmark in the literature on forecasting commodity prices. We challenge this custom by examining whether alternative models are more suited for this purpose. Based on a literature review and the results of two out-of-sample forecasting experiments, we draw two conclusions. First, in forecasting nominal commodity prices at shorter horizons, the random walk benchmark should be supplemented by futures-based forecasts. Second, in forecasting real commodity prices, the random walk benchmark should be supplemented, if not substituted, by forecasts from the local projection models. In both cases, the alternative benchmarks deliver forecasts of comparable and, in many cases, of superior accuracy. |
| first_indexed | 2024-03-10T10:16:10Z |
| format | Article |
| id | doaj.art-ff2ca9067b7c414b8f5c9844bc5d2781 |
| institution | Directory Open Access Journal |
| issn | 2571-9394 |
| language | English |
| last_indexed | 2024-03-10T10:16:10Z |
| publishDate | 2021-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Forecasting |
| spelling | doaj.art-ff2ca9067b7c414b8f5c9844bc5d27812023-11-22T00:49:16ZengMDPI AGForecasting2571-93942021-06-013244745910.3390/forecast3020027Forecasting Commodity Prices: Looking for a BenchmarkMarek Kwas0Michał Rubaszek1Collegium of Economic Analysis, SGH Warsaw School of Economics, 02-554 Warsaw, PolandCollegium of Economic Analysis, SGH Warsaw School of Economics, 02-554 Warsaw, PolandThe random walk, no-change forecast is a customary benchmark in the literature on forecasting commodity prices. We challenge this custom by examining whether alternative models are more suited for this purpose. Based on a literature review and the results of two out-of-sample forecasting experiments, we draw two conclusions. First, in forecasting nominal commodity prices at shorter horizons, the random walk benchmark should be supplemented by futures-based forecasts. Second, in forecasting real commodity prices, the random walk benchmark should be supplemented, if not substituted, by forecasts from the local projection models. In both cases, the alternative benchmarks deliver forecasts of comparable and, in many cases, of superior accuracy.https://www.mdpi.com/2571-9394/3/2/27commodity pricescommodity futuresmean-reversionlocal projectionforecasting |
| spellingShingle | Marek Kwas Michał Rubaszek Forecasting Commodity Prices: Looking for a Benchmark Forecasting commodity prices commodity futures mean-reversion local projection forecasting |
| title | Forecasting Commodity Prices: Looking for a Benchmark |
| title_full | Forecasting Commodity Prices: Looking for a Benchmark |
| title_fullStr | Forecasting Commodity Prices: Looking for a Benchmark |
| title_full_unstemmed | Forecasting Commodity Prices: Looking for a Benchmark |
| title_short | Forecasting Commodity Prices: Looking for a Benchmark |
| title_sort | forecasting commodity prices looking for a benchmark |
| topic | commodity prices commodity futures mean-reversion local projection forecasting |
| url | https://www.mdpi.com/2571-9394/3/2/27 |
| work_keys_str_mv | AT marekkwas forecastingcommoditypriceslookingforabenchmark AT michałrubaszek forecastingcommoditypriceslookingforabenchmark |