nep-for New Economics Papers
on Forecasting
Issue of 2010‒02‒20
three papers chosen by
Rob J Hyndman
Monash University

  1. Usefulness of the Forward Curve in Forecasting Oil Prices By Akira Yanagisawa
  2. ECB Projections: should leave it to the pros? By Pacheco, Luis
  3. Demographics and the Term Structure of Stock Market Risk By Carlo A. Favero; Andrea Tamoni

  1. By: Akira Yanagisawa (Institute of Energy Economics, Japan)
    Abstract: When people analyse oil prices, the forward curve is often referred to as it reflects the average view among market participants. In this paper, to what extent the forward curve provides useful information in forecasting oil prices was analysed quantitatively. Although the usefulness of the forward curve is confirmed in forecasting oil prices, the effect in reducing forecast error is small. Additionally, the forward curve is actually useful for one week ahead and for one month ahead in daily and weekly forecasts, respectively. However, the forward curve is scarcely useful in long-term forecast.
    Keywords: oil prices, forward curve, price forecasting
    JEL: Q40
    Date: 2009
  2. By: Pacheco, Luis (Universidade Portucalense)
    Abstract: Forecasts are an inherent part of economic science and the quest for perfect foresight occupies economists and researchers in multiple fields. The release of economic forecasts (and its revisions) is a popular and often publicized event, with a multitude of institutions and think-tanks devoted almost exclusively to that task. The European Central Bank (ECB) also publishes its forecasts for the euro area, however ECB’s forecast accuracy is not a deeply researched theme. The ECB forecasts’ accuracy is the main point developed in this paper, which tries to contribute to understand the nature of the errors committed by the ECB forecasts and its main differences compared to other projections. What we try to infer is whether the ECB is accurate in its projections, making less errors than the others, maybe due to some informational advantage. We conclude that the ECB seems to consistently underestimate the HICP inflation rate and overestimate GDP growth. Comparing it with the others, the ECB shows a superior performance, committing almost always fewer errors. So, this signals a possible informational advantage from the ECB. Since the forecasting errors could jeopardize ECB’s credibility public criticism could be avoided if the ECB simply let forecasts for the others. Naturally, this change should be weighted against the benefits of publishing forecasts.
    Keywords: European Central Bank; Staff projections; Monetary Policy; Forecasting; Central Bank Communication
    JEL: E52 E58
    Date: 2010–02–08
  3. By: Carlo A. Favero; Andrea Tamoni
    Abstract: The term structure of stock market risk depends on the predictability of stock market returns at different horizons. Intuitive reasoning, formal modeling and empirical evidence show that demographic trends are a slow-moving information variable, whose forecasting power is low at high frequency but becomes high at low frequencies, when the effect of the noisy component of stock market fluctuations disappears. We show that the forward solution of the dynamic dividend growth model does naturally progressively eliminate the noise component as the horizon increases. Direct regressions of returns at different horizon on the relevant predictors capture this feature of the model, while VAR based multiperiod iterated forecasts do not, as they are derived from a backward solution of a reduced form empirical model. The combination of direct regression with the use of demographic trends leads us to find a steeply downaward sloping term structure of stock market risk.
    Date: 2010

This nep-for issue is ©2010 by Rob J Hyndman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.