In this study, a novel forecasting model based on the Wavelet Neural Network (WNN) is proposed to predict the monthly crude oil spot price. In the proposed model, the OECD industrial petroleum inventory level is used as an independent variable, and the Wavelet Neural Network (WNN) is used to explore the nonlinear relationship between inventories and the price. For verification purposes, the West Texas Intermediate (WTI) crude oil spot price is used for the tested target. Experimental results reveal that the WNN can model the nonlinear relationship between inventories and the price very well. Furthermore, the in-sample and out-of-sample prediction performance also demonstrates that the WNN-based forecasting model can produce more accurate prediction results than other nonlinear and linear models, even when the lengths of the forecast horizon are relatively short or long.

Vector autoregressions are widely used in macroeconomic forecasting since they became known in the 1970s. Extensions including vector error correction models, co-integration and dynamic factor models are all rooted in the framework of vector autoregression. The three important extensions are demonstrated to have formal equivalence between each other. Above all, they all emphasize the importance of “common trends” or “common factors”. Many researches, including a series of work of Stock and Watson, find that “common factor” models significantly improve accuracy in forecasting macroeconomic time series. This study follows the work of Stock and Watson. The authors propose a hybrid framework called genetic programming based vector error correction model (GPVECM), introducing genetic programming to traditional econometric models. This new method could construct common factors directly from nonstationary data set, avoiding differencing the original data and thus preserving more information. The authors’ model guarantees that the constructed common factors satisfy the requirements of econometric models such as co-integration, in contrast to the traditional approach. Finally but not trivially, their model could save lots of time and energy from repeated work of unit root tests and differencing, which they believe is convenient for practitioners. An empirical study of forecasting US import from China is reported. The results of the new method dominates those of the plain vector error correction model and the ARIMA model.

Vector autoregressions are widely used in macroeconomic forecasting since they became known in the 1970s. Extensions including vector error correction models, co-integration and dynamic factor models are all rooted in the framework of vector autoregression. The three important extensions are demonstrated to have formal equivalence between each other. Above all, they all emphasize the importance of “common trends” or “common factors”. Many researches, including a series of work of Stock and Watson, find that “common factor” models significantly improve accuracy in forecasting macroeconomic time series. This study follows the work of Stock and Watson. The authors propose a hybrid framework called genetic programming based vector error correction model (GPVECM), introducing genetic programming to traditional econometric models. This new method could construct common factors directly from nonstationary data set, avoiding differencing the original data and thus preserving more information. The authors’ model guarantees that the constructed common factors satisfy the requirements of econometric models such as co-integration, in contrast to the traditional approach. Finally but not trivially, their model could save lots of time and energy from repeated work of unit root tests and differencing, which they believe is convenient for practitioners. An empirical study of forecasting US import from China is reported. The results of the new method dominates those of the plain vector error correction model and the ARIMA model.

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