Inside the Crystal Ball: New Approaches to Predicting the Gasoline Price at the Pump. (1st March 2016)

• Record Type: Journal Article
• Authors: Baumeister, Christiane; Kilian, Lutz; Lee, Thomas K.
• Is Part Of: Journal of applied econometrics. Volume 32:Number 2(2017)
• Page Start: 275
• Page End: 295
• Publication Date: 2016-03-01
• Subjects: Econometrics -- Periodicals; 330.015195
• DOI: 10.1002/jae.2510
• Languages: English
• ISSNs: 0883-7252

Abstract

Summary: Appropriate real‐time forecasting models for the US retail price of gasoline yield substantial reductions in the mean‐squared prediction error (MSPE) at horizons up to 2 years as well as substantial increases in directional accuracy. Even greater MSPE reductions are possible by constructing a pooled forecast that assigns equal weight to five of the most successful forecasting models. Pooled forecasts have lower MSPE than the US Energy Information Administration gasoline price forecasts and the gasoline price expectations in the Michigan Survey of Consumers. We also show that as much as 39% of the decline in gas prices between June and December 2014 was predictable. Copyright © 2016 John Wiley & Sons, Ltd.