HOME PAGE | |
№ 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 :880 |
REFERENCES ▼
2. Korablin, S. (2016). National business cycle and general government revenue in Ukraine: a quantitative assessment approach. Ekon. teor. – Economic Theory, 2, 75-84 [in Ukrainian].
3. Ye, M., Zyren, J., Shore, J. (2002). Forecasting Crude Oil Spot Price Using OECD Petroleum Inventory Levels. International Advances in Economic Research, 8 (4), 324-33. Springer. doi: doi.org/10.1007/BF02295507
4. Panas, E., Ninni, V. (2000). Are oil markets chaotic? A non-linear dynamic analysis. Energy Economics, 22, 549-568. Elsevier. doi: doi.org/10.1016/S0140-9883(00)00049-9
5. Kilian, L. (2008). The Economic Effects of Energy Price Shocks. Journal of Economic Literature, 46(4), 871-909. doi: doi.org/10.1257/jel.46.4.871
6. He, Y., Wang, S., Lai, K. (2010). Global economic activity and crude oil prices: A co-integration analysis. Energy Economic, 32, 868-876. Elsevier. doi: doi.org/10.1016/j.eneco.2009.12.005
7. Barsky, R., Kilian, L. (2004). Oil and the macroeconomy since the 1970s. The U.S. NBER Working Paper, 10855. doi: doi.org/10.3386/w10855
8. Niemira, M.P., Klein, P.A. (1995). Forecasting financial and economic cycles. N.Y.: John Wiley &Sons, Inc.
9. Hamilton, J. (2008). Understanding crude oil prices. Policy and Economics. University of California. San Diego, USA. doi: doi.org/10.3386/w14492
10. Yu, L., Wang, S., Lai, K. (2008). Forecasting crude oil price with an EMD-based neural network ensemble learning paradigm. Energy Economics, 30, 2623-2635. doi: doi.org/10.1016/j.eneco.2008.05.003
11. Huntington, H. (1994). Oil price forecasting in 1980-s: what went wrong? The Energy Journal, 15, 2. doi: doi.org/10.5547/ISSN0195-6574-EJ-Vol15-No2-1
12. Bandura, A.V. (2016). General model of economic cycles – cumulative market imperfection model (CMI-model). Ekon. teor. – Economic Theory, 1, 86-100 [in Ukrainian].
13. Bandura, A.V. (2007). Conceptual increasing in the economic forecasting accuracy. Ekonomist – Economist, 3, 9-12 [in Ukrainian].
№ 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 :608 |
REFERENCES ▼
2. Temin, P. (1998, June). The Causes of American Business Cycles: An Essay in Economic Historiography. Federal Reserve Bank of Boston. Conference Series, 42, 37-59. doi.org/10.3386/w6692
3. Sargent, T.J. (1979). Macroeconomic theory. New York: Academic Press.
4. Stock, J.S. (1987). Measuring business cycle time. Journal of Political Economy, 95: 6, 1240-1261. doi.org/10.1086/261513
5. Chauvet, M., Hamilton, J. (2005). Dating business cycles turning points. NBER Working paper, 11422, 72. doi.org/10.3386/w11422
6. Chauvet, M., Piger, J. (2005). A Comparison of the Real-Time Performance of Business Cycle Dating Methods. Federal Reserve Bank of St. Louis Working Paper, 021A, 32. doi.org/10.20955/wp.2005.021
7. Stock, J., Watson, M. (2010). Indicators for Dating Business Cycles: Cross-History Selection and Comparisons. American Economic Review: Papers & Proceedings, 100: 2, 16-19. doi.org/10.20955/wp.2005.021
8. US National Bureau of Economic Research. Retrieved from www.nber.org_cycles
9. Polterovich, V. (1997, January). The crisis of economic theory. Report at the seminar "Unknown Economy" at the Central Economics and Economics Institute of the Russian Academy of Sciences. Retrieved from mathecon.cemi.rssi.ru/vm_polterovich/files/Crisis_Economic_Theory.pdf [in Russian].
10. Orphanides, A. (2002). Monetary policy rules and the Great Inflation. Board of Governors of the Federal Reserve System, materials for the January 2002 Meeting of the American Economic Association. Atlanta, GA. mathecon.cemi.rssi.ru/vm_polterovich/files/Crisis_Economic_Theory.pdf
11. Fisher, S., Donbush, R., Shmalenzi, R.(1993). Economy. Moscow: “ Delo LTD” [in Russian].
12. Bandura, O.V. (2016). The overall model of economic cycles is a model of cumulative market failure. Ekon. teor. – Economic theory, 1, 86-100. doi.org/10.15407/etet2016.01.086 [in Ukrainian].
13. US Bureau of Labor Statistics. Retrieved from www.bls.gov
14. US Bureau of Economic Analysis. Retrieved from www.bea.gov
15. Benchmark GDP Revision Offers up some Surprises (2003, December 10). The Wall Street Journal.
16. Boon the Bush? Recession Might Predate President (2004, January 21). The Wall Street Journal.
17. Bandura, O.V. (2017). Monetary policy efficiency and sustainable growth. Ekon. teor. – Economic theory, 1, 38-53. doi.org/10.15407/etet2017.01.077 [in Ukrainian].
№ 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 :244 |
REFERENCES ▼
2. Okun, A. (1962). Potential Output: Its Measurement and Significance. American Statistical Association Proceedings of the Business and Economic Section. Washington, D.C.: American Statistical Association.
3. Asso, P., Kahn, G., Leeson, R. (2007). The Taylor Rule and the Transformation of Monetary Policy. Federal Reserve Bank of Kansas City Research Working Paper, RWP 07-11, 41. Retrieved from
www.kansascityfed.org/documents/541/pdf-rwp07-11.pdf
4. Amamiya, M. (2017, January 11). History and Theories of Yield Curve Control. Keynote Speech at the Financial Markets Panel Conference to Commemorate the 40th Meeting. Retrieved from www.boj.or.jp/en/announcements/press/koen_2017/data/ko170111a1.pdf
5. Svensson, L. (2011). Evaluating monetary policy. In Koenig E., Leeson R., Kahn G. (Eds.). The Taylor rule and the transformation of monetary policy (p. 245-274). Hoover institution press. Retrieved from larseosvensson.se/files/papers/evaluating-monetary-policy.pdf
6. Orphanides, A. (2003, June). Historical Monetary Policy Analysis and the Taylor Rule. Board of Governors of the Federal Reserve System, 50. Retrieved from www.sciencedirect.com/science/article/abs/pii/S0304393203000655; doi.org/10.17016/FEDS.2003.36
7. Baro, R.J., Sala-i-Martin, X. (2004). Economic Growth. 2nd ed. The MIT Press, USA.
8. Niemira, M., & Klein, P. (1995). Forecasting financial and economic cycles. NY: John Wiley & Sons, Inc.
9. Orphanides, A. (1997, December). Monetary Policy Rules Based on Real-Time Data. Board of Governors of the Federal Reserve System, 41. Retrieved from www.federalreserve.gov/pubs/feds/1998/199803/199803pap.pdf; doi.org/10.17016/FEDS.1998.03
10. Tavlas, G. (2014). In Old Chicago: Simons, Friedman and the Development of Monetary-Policy Rules. The Becker Friedman Institute for Research in Economics (BFI), The University of Chicago Working Paper Series, 2014-02. Retrieved from onlinelibrary.wiley.com/doi/abs/10.1111/jmcb.12170; doi.org/10.2139/ssrn.2382839
11. Judd, J., Rudebusch, G. (1998). Taylor’s Rule and the Fed: 1970-1997. Federal Reserve Bank of San-Francisco Economic Review, 3. Retrieved from glennrudebusch.com/wp-content/uploads/1998_FRBSF-ER_Judd-Rudebusch_Taylors-Rule-and-the-Fed-1970-1997.pdf
12. Rudebusch, G. (2001, May). Is the Fed too timed? Monetary Policy in an Uncertain World. The Review of Economics and Statistics, LXXXIII: 2, 203-217. Retrieved from
glennrudebusch.com/wp-content/uploads/2001_REStat_Rudebusch_Is-the-Fed-Too-Timid-Monetary-Policy-in-an-Uncertain-World.pdf; doi.org/10.1162/00346530151143752
13. Belke, A, Polleit, T. (2006). How the ECB and US Fed set interest rates. HfB Working Paper Series, 72. Retrieved from nbn-resolving.de/urn:nbn:de:101:1-2008082788
14. Belke, A., Klose, J. (2010). How do the ECB and the Fed react to financial market uncertainty? The Taylor rule in times of crisis. ROME Discussion Paper Series, 10-01, l. Retrieved from
www.econstor.eu/bitstream/10419/88238/1/772999406.pdf; doi.org/10.2139/ssrn.1592442
15. Woodford, M. (2001). The Taylor Rule and Optimal Monetary Policy. Recent advantages in monetary policy rules. American Economic Association papers and proceedings, 91: 2, 232-237. Retrieved from www.aeaweb.org/articles?id=10.1257/aer.91.2.232; doi.org/10.1257/aer.91.2.232
16. Nikolsko-Rzhevskyy, A., Papell, D. (2015). Real-Time Historical Analysis of Monetary Policy Rules. Retrieved from ssrn.com/abstract=2295192
17. Bandura, O.V. (2016). The general model of economic cycles is a model of cumulative market imperfections. Ekon. teor. – Economic theory, 1, 86-100. doi.org/10.15407/etet2016.01.086 [in Ukraine].
18. Szargut, J., Morris, D. (1987). Cumulative Exergy Consumption and Cumulative Degree of Perfection of Chemical Processes. Energy Research, 11, 245-261. doi.org/10.1002/er.4440110207
19. Taylor, J. (1993). Discretion versus policy rules in practice. Carnegie-Rochester Conference Series on Public Policy, 39, 195-214. Retrieved from
opendata.dspace.ceu.es/bitstream/10637/2345/1/p%20195_214.pdf; doi.org/10.1016/0167-2231(93)90009-L
20. Bandura, O.V. (2017). Monetary policy efficiency and sustainable growth. Ekon. teor. – Economic theory, 1, 38-53. doi.org/10.15407/etet2017.01.077 [in Ukraine].
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].
Events calendar
M | T | W | T | F | S | S |
---|---|---|---|---|---|---|
1 | 2 | 3 | 4 | 5 | 6 | 7 |
8 | 9 | 10 | 11 | 12 | 13 | 14 |
15 | 16 | 17 | 18 | 19 | 20 | 21 |
22 | 23 | 24 | 25 | 26 | 27 | 28 |
29 | 30 |