We show that house prices from Aberdeen in the UK improve in- and out-of-sample oil price forecasts. The improvements are of a similar magnitude to those attained using macroeconomic indicators. We ex- plain these forecast improvements with the dominant role of the oil industry in Aberdeen. House prices aggregate the dispersed knowl- edge of the future oil price that exists in the city. We obtain similar empirical evidence for Houston, another city dominated by the oil in- dustry. Consistent with our explanation, we find that house prices from economically more diversified areas in the UK and the US do not improve oil price forecasts.
|Name||SFB 649 Discussion Paper|
- oil price forecasting
- house prices
- knowledge spillover