OPEC News and Exchange Rate Forecasting Using Dynamic Bayesian Learning

We consider whether a newspaper article count index related to the organization of the petroleum exporting countries (OPEC), which rises in response to important OPEC meetings and events connected with OPEC production levels, contains predictive power for the foreign exchange rates of G10 countries. The applied Bayesian inference methodology synthesizes a wide array of established approaches to modelling exchange rate dynamics, whereby various vector-autoregressive models are considered. Monthly data from 1996:01 to 2020:08 (given an in-sample of 1986:02 to 1995:12), shows that incorporating the OPEC news-related index into the proposed methodology leads to statistical gains in out-of-sample forecasts.