Forecasting Commodity Prices: Futures Versus Judgment

Author/Editor:

Aasim M. Husain ; Chakriya Bowman

Publication Date:

March 1, 2004

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper assesses the performance of three types of commodity price forecasts—those based on judgment, those relying exclusively on historical price data, and those incorporating prices implied by commodity futures. For most of the 15 commodities in the sample, spot and futures prices appear to be nonstationary and to form a cointegrating relation. Spot prices tend to move toward futures prices over the long run, and error-correction models exploiting this feature produce more accurate forecasts. The analysis indicates that on the basis of statistical- and directional-accuracy measures, futures-based models yield better forecasts than historical-data-based models or judgment, especially at longer horizons.

Series:

Working Paper No. 2004/041

Subject:

Agricultural commodities Commodities Commodity prices Financial institutions Futures Oil Prices

English

Publication Date:

March 1, 2004

ISBN/ISSN:

9781451846133/1018-5941

Stock No:

WPIEA0412004

Pages:

28

Please address any questions about this title to publications@imf.org