Business Standard

Oil price volatility: Policy options

Given the random walk, changing oil prices impact short-term macroeconomic stabilization

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Rathin Roy
Oil industry forecasters and economists have been trying to predict future oil prices for over 70 years. The major analytical conclusion (see this for a summary) is that the best predictor of future oil prices is the present oil price. Technically, this means oil prices move akin to a random walk without drift.

In India, analysts in the private sector and media commentators appear ignorant of this. Like central planners, they read supply-demand forecasts to make predictions about future prices and use this as a basis to advocate government intervention. This leads to accusatory hysteria about government doing
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper

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