Incorporating Russo-Ukrainian war in Brent crude oil price forecasting: A comparative analysis of ARIMA, TARMA and ENNReg models

Abstract

This article investigates the performance of three models - Autoregressive Integrated Moving Average (ARIMA), Threshold Autoregressive Moving Average (TARMA) and Evidential Neural Network for Regression (ENNReg) - in forecasting the Brent crude oil price, a crucial economic variable with a significant impact on the global economy. With the increasing complexity of the price dynamics due to geopolitical factors such as the Russo-Ukrainian war, we examine the impact of incorporating information on the war on the forecasting accuracy of these models. Our analysis shows that incorporating the impact of the war can significantly improve the forecasting accuracy of the models, and the ENNReg model with the inclusion of the dummy variable outperforms the other models during the war period. Including the war variable has enhanced the forecasting accuracy of the ENNReg model by 0.11%. These results carry significant implications regarding policymakers, investors, and researchers interested in developing accurate forecasting models in the presence of geopolitical events such as the Russo-Ukrainian war. The results can be used by the governments of oil-exporting countries for budget policies.

Keywords

• Brent crude oil price
• TARMA model
• ENNReg model
• ARIMA model
• Russo-Ukrainian war
• Forecasting