Oil-Price Density Forecasts of U.S. GDP
Abstract
We carry out a pseudo out-of-sample density forecasting study for U.S. GDP with
an autoregressive benchmark and alternatives to the benchmark than include both oil
prices and stochastic volatility. The alternatives to the benchmark produce superior
density forecasts. This comparative density performance appears to be driven more
by stochastic volatility than by oil prices. We use our density forecasts to compute
a recession risk indicator around the Great Recession. The alternative model that
includes the real price of oil generates the earliest strong signal of a recession; but it
also shows increased recession risk after the Great Recession.