Skip to main content
Log in

Is accurate forecasting of economic systems possible?

An editorial comment

  • Published:
Climatic Change Aims and scope Submit manuscript

Abstract

Structural constancy, both across time and across variable conditions, is a necessary precondition for accurate forecasting. Physical systems exhibit structural constancy, but economic and social systems generally do not. In this paper we examine the effects of policy, technology, and price volatility in commodity markets on the relationship between soybean oil and petroleum prices. An early Energy Information Administration (EIA) forecast of soy-based biodiesel price projected a simple relationship between soybean oil demand and price into the future—a relationship that has little explanatory power over the recent price volatility in oilseed markets. We propose that structural inconstancy and new trading behavior better explain price movements in soybean oil, and we further argue that forecasters must invent new ways of addressing the fundamental epistemological challenge of structural inconstancy in economic and social systems.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Abbott PC, Hurt C, Tyner WE (2009) What’s driving food prices? March 2009 Update Issue Report Farm Foundation. www.farmfoundation.org

  • Aldrich SC, Newcomb J, Carlson DR (2008) The big squeeze: new fundamentals for food and fuel markets bio-era. Bio Economic Research Associates

  • Baier S, Clements M, Griffiths C, Ihrig J (2009) Biofuels impact on crop and food prices: using an interactive spreadsheet. Board of Governers of the Federal Reserve System

  • Bantz SG, Deaton ML (2006) Understanding U.S. Biodiesel Industry Growth using system dynamics modeling. In: Systems and information engineering design symposium. IEEE, Charlottesville, VA

    Google Scholar 

  • Campiche JL, Bryant HL, Richardson JW, Outlaw JL (2007) Examining the evolving correspondence between petroleum prices and agricultural commodity prices. American Agricultural Economics Association, Portland, OR

  • Chapman MS (2008–2009) Rising global food prices: the need for re-regulating commodity futures. In: Sustainable development law and policy, pp 43–44

  • Craig P, Gadgil A, Koomey J (2002) What can history teach us?: a retrospective analysis of long-term energy forecasts for the U.S. Annu Rev Energy Environ 2002:83–118

    Article  Google Scholar 

  • Garrett TJ (2010) Are there basic physical constraints on future anthropogenic emissions of carbon dioxide? Clim Change. doi:10.1007/s10584-009-9717-9

    Google Scholar 

  • Ghanadan R, Koomey JG (2005) Using energy scenarios to explore alternative energy pathways in California. Energy Policy 33:1117–1142

    Article  Google Scholar 

  • Grubler A, Nakicenovic N, Victor DG (1999a) Dynamics of energy technologies and global change. Energy Policy 27:247–280

    Article  Google Scholar 

  • Grubler A, Nakicenovic N, Victor DG (1999b) Modeling technological change: implications for the global environment. Annu Rev Energy Environ 24:545–569

    Article  Google Scholar 

  • Hameed AAA, Arshad FM (2008) The impact of petroleum prices on vegetable oils prices: evidence from cointegration tests. In: International Borneo business conference on global changes: corporate responsibility

  • Hodges JS, Dewar JA (1992) Is it you or your model talking? A framework for model validation. RAND, Santa Monica, CA

    Google Scholar 

  • Huete S, Flach B (2009) EU-27 biofuels annual. USDA Foreign Agricultural Service (FAS) Global Agricultural Information Network (GAIN)

  • Koomey JG (2002) From my perspective: avoiding “the big mistake” in forecasting technology adoption. Technol Forecast Soc Change 69:511–518

    Article  Google Scholar 

  • Koomey J (2008) Turning numbers into knowledge: mastering the art of problem solving. Analytics Press, Oakland, CA. http://analyticspress.com

    Google Scholar 

  • Koomey J, Krause F (2009) Why 2 degrees really matters. Climateprogress.org. http://climateprogress.org/2009/copenhagen-two-degrees-warming-target

  • Koomey JG, Craig P, Gadgil A, Lorenzetti D (2003) Improving long-range energy modeling: a plea for historical retrospectives. Energy J 24:75–92

    Google Scholar 

  • Krause F, Bach W, Koomey JG (1992) Energy policy in the greenhouse. Wiley, New York

    Google Scholar 

  • Krause F, Haites E, Howarth R, Koomey JG (1993) Cutting carbon emissions-burden or benefit?: The economics of energy-tax and non-price policies. In: International project for sustainable energy paths. El Cerrito, CA

  • Menzie K (2009) USDA senior oilseed economist. Personal communication on 11.10.09

  • Radich A (2004) In: Administration EI (ed) Biodiesel perfomance, costs, and use. Washington, DC

  • Schwartz P (1996) The art of the long view: planning for the future in an uncertain world. DoubleDay, New York

    Google Scholar 

  • Trostle R (2008) Global agricultural supply and demand: factors contributing to the recent increase in food commodity prices in service. U.E.R. (ed)

  • Yu TH, Bessler DA, Fuller S (2006) Cointegration and causality analysis of world vegetable oil and crude oil prices. American Agricultural Economics Association, Long Beach, CA

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Jonathan G. Koomey.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Scher, I., Koomey, J.G. Is accurate forecasting of economic systems possible?. Climatic Change 104, 473–479 (2011). https://doi.org/10.1007/s10584-010-9945-z

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10584-010-9945-z

Keywords

Navigation