A Short-Run Crude Oil Price Forecast Model with Ratchet Effect

Michael Ye (), John Zyren, Carol Blumberg and Joanne Shore

Atlantic Economic Journal, 2009, vol. 37, issue 1, 37-50

Abstract: From 1992 through early 2004, crude oil prices were predictable by using OECD’s relative inventories and OPEC’s excess production capacity. However, since 2004, estimated inventories and excess production capacity under-predict crude oil prices. Using 3-D graphical analyzes, three regimes are identified in crude oil markets during the period from January 1992 to December 2007, reflecting market conditions and OPEC policy changes. These graphics show the changing relationship between crude oil price, inventories and excess production capacity. To reflect this, a ratchet variable, derived from cumulative excess production capacity, is incorporated into the forecasting model to reflect the changing behavior on both demand and supply sides. This model provides improved forecasts for the post Gulf War I time period over models without the ratchet mechanism. Copyright International Atlantic Economic Society 2009

Keywords: Crude oil prices; Crude oil inventory; Crude oil excess production capacity; Duesenberry ratchet effect; Q00 Agriculture and Natural Resources (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11293-008-9158-2

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