Predictive performance of the World Bank's commodity price projections

The World Bank's commodity price projections are widely used for various planning purposes. Two aspects of the Bank's projections of relative prices are studied in this paper. The first is whether the forecasts make efficient use of the information available at the time the forecast is made. The second is whether the forecasts predict future prices with greater accuracy than alternative forecasting methods. These matters are studied by comparing the World Bank's past price projections with the actual prices that were subsequently observed. The results show that, overall, the World Bank forecasts do not pass either test. First, the World Bank forecasts are informationally inefficient. Prediction error (projection minus actual price) tends to be positively correlated with the projections themselves. Although the direction of future price movements tends to be correctly predicted, the magnitude of these movements tends to be overpredicted. Second, the World Bank forecasts do not perform well even compared with the simplest of alternative forecasting methods - the prediction of no change.