Does Disagreement Among Oil Price Forecasters Reflect Volatility? Evidence from the ECB Surveys

38 Pages Posted: 18 Apr 2014

See all articles by Tarek Atalla

Tarek Atalla

King Abdullah Petroleum Studies and Research Center (KAPSARC); Independent

Frederick Joutz

George Washington University

Axel Pierru

King Abdullah Petroleum Studies and Research Center (KAPSARC)

Date Written: April 17, 2014

Abstract

We examine quarterly oil price forecasts from the Survey of Professional forecasters by the European Central Bank. We find statistical evidence at short forecast horizons that oil price volatility observed ex post explains ex-ante disagreement between oil price forecasters of the ECB’s professional survey. There are three main findings. First, the log of the absolute forecast errors is positively related to the log of the dispersion around the survey mean (or median) for the respondents. Second, the contemporaneous quarter’s oil price volatility explains the dispersion of the survey respondents at the current and next quarter. If assume that the oil price follows a Brownian motion process, the measure of disagreement can provide a proxy for volatility. When applied to the ECB surveys, this method results in a disagreement-based volatility measure that is well correlated with the volatility observed ex post. These empirical findings are robust to the number of respondents considered.

Suggested Citation

Atalla, Tarek and Atalla, Tarek and Joutz, Frederick and Pierru, Axel, Does Disagreement Among Oil Price Forecasters Reflect Volatility? Evidence from the ECB Surveys (April 17, 2014). USAEE Research Paper Series No. 14-162, Available at SSRN: https://ssrn.com/abstract=2426348

Tarek Atalla (Contact Author)

King Abdullah Petroleum Studies and Research Center (KAPSARC) ( email )

Riyadh, Central Province
Saudi Arabia

Independent ( email )

Frederick Joutz

George Washington University ( email )

710 21st Street NW
Washington, DC 20052
United States

Axel Pierru

King Abdullah Petroleum Studies and Research Center (KAPSARC) ( email )

Riyadh, Central Province
Saudi Arabia

HOME PAGE: http://www.kapsarc.org/

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