Does Disagreement Among Oil Price Forecasters Reflect Volatility? Evidence from the ECB Surveys
38 Pages Posted: 18 Apr 2014
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.
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