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Oil And US GDP: A Real-Time Out-Of-Sample Examination

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Executive Summary

The authors study the real-time Granger-causal relationship between crude oil prices and US GDP growth through a simulated Out-Of-Sample (OOS) forecasting exercise; they also provide strong evidence of in-sample predictability from oil prices to GDP. Comparing the benchmark model "Without oil" against alternatives "With oil," they strongly reject the null hypothesis of no OOS predictability from oil prices to GDP via the point forecast comparisons from the mid-1980s through the Great Recession. Further analysis shows that these results may be due to the oil price measures serving as proxies for a recently developed measure of global real economic activity omitted from the alternatives to the benchmark forecasting models in which they only use lags of GDP growth.

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