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.
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
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
Garrett TJ (2010) Are there basic physical constraints on future anthropogenic emissions of carbon dioxide? Clim Change. doi:10.1007/s10584-009-9717-9
Ghanadan R, Koomey JG (2005) Using energy scenarios to explore alternative energy pathways in California. Energy Policy 33:1117–1142
Grubler A, Nakicenovic N, Victor DG (1999a) Dynamics of energy technologies and global change. Energy Policy 27:247–280
Grubler A, Nakicenovic N, Victor DG (1999b) Modeling technological change: implications for the global environment. Annu Rev Energy Environ 24:545–569
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
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
Koomey J (2008) Turning numbers into knowledge: mastering the art of problem solving. Analytics Press, Oakland, CA. http://analyticspress.com
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
Krause F, Bach W, Koomey JG (1992) Energy policy in the greenhouse. Wiley, New York
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
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
Author information
Authors and Affiliations
Corresponding author
Rights 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
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10584-010-9945-z