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№ 2/2018
BANDURA Oleksandr Viktorovych1
1Institute for Economics and Forecasting, NAS of Ukraine
Forecasting the trends of global oil price based on CMI-model of economic cycles
Ekon. prognozuvannâ 2018; 2:91-110 | https://doi.org/10.15407/eip2018.02.091 |
ABSTRACT ▼
This paper presents author's method to forecast price trend direction for crude oil based on CMI-model of business cycles. As crude oil is included in CRB-index, which is the average weighted prices for 19 raw materials, the price dynamics for crude oil and the index is mainly unidirectional. Therefore, the method to forecast crude oil price, which is proposed here, can be also used for CRB-index forecasting.
The price trend is determined by aggregate demand, which, in turn, depends on economic growth rate, and on the phase of the U.S. business cycle. According to CMI-model, phases of business cycles are determined by the value of cumulative market imperfection for the U.S. economy (?P). Two rules to forecast the price trend for crude oil or for CRB-index are proposed: 1) yearly price decreases between minimum and maximum values of ?P; 2) yearly price increases between maximum and minimum values of ?P. These rules underwent empirical testing for the time period of 1975-2017 using yearly data for the crude oil (at NYMEX, ICE).
We also demonstrated empirically that relationship between phases of the U.S. business cycles and turning points for CRB-index dynamics is of critical importance for the accurate forecasting of Ukrainian business cycle. Using the US economy data, it was demonstrated that the effect of the crude oil price rise on economic growth rate depends rather on the phase of business cycle (on its critical points location), than on the absolute value of this price.
As long as an economy does not reach the point of ?P minimum (by CMI-model), crude oil price may reach its historical maximum many times without triggering a recession. At the same time, if an economy passes the point of ?P mini-mum, any even comparatively small external shock will trigger a recession (even if crude oil price does not reach its historical maximum). The US economy passed through the point of local maximum starting from the fourth quarter of 2017. It means that an upward price trend for crude oil (CRB-index) has formed and will cause further acceleration of the US economy growth rate (peak of this acceleration will be reached when ?Р=0).
One can expect that the upward price trend for main raw materials will last until the next US recession (until the value of ?Р become negative). Herewith, growth rates for the crude oil price are expected 1,5-2 times higher than nowadays just 6-12 months before the recession starting point (i.e. when ?Р?0). According to pessimistic scenario, the US recession may occur as early as in 2020-21. Therefore, Ukrainian economy may be growing with a rate equal to the growth rate of prices for raw materials within at least 2-3 years.
However, such favorable external factors for Ukrainian economy cannot last for a long time. If the peak of payments of the national debt coincides with the US recession bottom (local minimum point), some major problems for Ukrainian economy may occur. In this case, prices for raw materials may drop by 50% and more, as a result of another exchange crash all over the world. This crash would increase significantly the probability of a new recession in Ukraine that would shorten substantially budget revenues into the national economy. Therefore, it makes sense nowadays, while monitoring the US economy conditions, to plan certain actions to provide a soft landing for the national economy in case of a global exchange crash.
Keywords: forecasting, crude oil price, raw materials price, business cycle, economic growth rate, macroeconomic dynamics
JEL: E 30, E 31, E 32, E 37
Article in Ukrainian (pp. 91 - 110) | Download | Downloads :907 |
REFERENCES ▼
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№ 4/2019
BANDURA Oleksandr Viktorovych1
1Institute for Economics and Forecasting, NAS of Ukraine
Cyclism as a form of combining stability and instability in economic development
Ekon. prognozuvannâ 2019; 4:7-23 | https://doi.org/10.15407/eip2019.04.007 |
ABSTRACT ▼
It has been empirically proven that the business cycle dating model is inextricably linked with defining the boundaries of periods of stable and instable economic development. The author compares the methods of dating US economic cycles in accordance with the model of the National Bureau of Economic Research (NBER) and the proposed in this article CMI model of cycles. Shown certain competitive advantages of dating media cycles based on the CMI model against the NBER model, in which case there may be periods of ambiguity in dating.
The article demonstrates that the use of the author's media model for dating business cycles avoids the ambiguities that arise in the official dating of recessions based on the classic US NBER model of cycles. The dating of US business cycles with the CMI model revealed a cumulative effect of reducing unemployment, which explains that even with relatively small economic growth, which, however, lasts for a sufficiently long period of time, a significant overall reduction in the unemployment rate can be achieved.
It is shown that the proposed equation to determine the cumulative market failure index (?Р) would allow simultaneous control and management of the dynamics of all three major macroeconomic indicators - employment, inflation and economic growth, which can be applied in the practice of regulating economic dynamics as a quantitative criterion of stability level. The equation for (?Р) reflects the current balance between inflation, employment and economic growth for each moment of real (calendar) time, which shapes a unique configuration of the economic cycle. Shown that the CMI model of economic cycle provides tools to achieve synergies from different types of regulation to maximize economic growth and employment at acceptable inflation by increasing the length of the stability period while reducing the magnitude of cumulative market failure.
Keywords:business cycle, dating, recession, growth rate, stability, instability, unem-ployment, inflation, regulation
JEL: E30, E31, E32, E37
Article in Ukrainian (pp. 7 - 23) | Download | Downloads :647 |
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№ 4/2021
BANDURA Oleksandr Viktorovych1
1Institute for Economics and Forecasting, NAS of Ukraine
OPTIMIZATION OF MACROECONOMIC POLICY AND STABILIZATION OF CYCLICAL ECONOMIC DYNAMICS
Ekon. prognozuvannâ 2021; 4:102-124 | https://doi.org/10.15407/eip2021.04.102 |
ABSTRACT ▼
This paper demonstrates that, despite the current mandate of monetary policy, its final goal (at least for central banks of developed countries) is the control of three main macroeconomic variables — economic growth, employment and inflation, — regardless on actual mandate for this policy. However, the priorities of realization of the final goal may face the imperfection of macroeconomic models and rules of monetary policy, which will make it impossible to control all three macroeconomic variables at the same time. The article proposes a new instrument for monetary policy ¬— aggregate cumulative market imperfection — to optimize macroeconomic variables and stabilize cyclical economic dynamics. The author demonstrates the main competitive advantages of this instrument of monetary policy as compared with typical models of macroeconomic dynamics and simple rules of monetary policy (Simons, Friedman, and Taylor rules). In particular, this instrument is valid for any combination of market conditions, for any economy and for any moment of real time. It can be used simultaneously as: 1) a target of monetary policy; 2) a simple rule of monetary policy correction in the short-run; 3) a reaction function to evaluate a backward connection between the regulator’s actions and the effect of these actions on current economic situation; and 4) an instrument to stabilize cyclical economic dynamics; 5) an instrument to forecast starting (ending) point of recessions and shift in macroeconomic trends. If we can hold the aggregate cumulative market imperfection within a given optimal interval with the help of government regulations (i.e. to target this indicator only) using all possible instruments both of monetary, and (if necessary) of other kinds of regulation policy, we will be able to optimize all three main macroeconomic variables. Optimality of these variables means providing maximum economic growth and employment under comfortable inflation for any combination of market conditions and for any moment of calendar time, which will at the same time stabilize cyclical economic dynamics. In doing so, we will not target each of these three variables separately, that is, it is practically impossible to determine quantitatively their optimal values as they change permanently over time together with the constant change of current combination of market conditions.
Keywords:monetary policy, regulation instruments, economic growth, employment, inflation, simple rules of monetary policy, economy stabilization
JEL: E30, E31, E32, E37
Article in Ukrainian (pp. 102 - 124) | Download | Downloads :275 |
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21. Grytsenko, A.A., Bandura, O.V. (2020). Features and factors of contemporary inflation dynamics. Ekon. teor. – Economic theory,1, 77-93. doi.org/10.15407/etet2020.01.077 [in Ukraine].
22. Bandura, O.V. (2019). Cycle as a form of combining stability and instability in economic development. Ekon. prognozuvannâ — Economу and forecasting, 4, 7-23. doi.org/10.15407/eip2019.04.007 [in Ukraine].
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