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Predicting Oil Price Bubbles: Monetary Policy versus Central Bank Information Shocks

Author

Listed:
  • Onur Polat

    (Department of Public Finance, Bilecik Seyh Edebali University, Bilecik, Turkiye)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Mariem Brahim

    (Paris School of Business, Paris, 75005, France)

  • Elie Bouri

    (School of Business, Lebanese American University, Lebanon)

Abstract

This paper compares the predictive roles of monetary policy and central bank information shocks in the formation of bubbles in West Texas Intermediate (WTI) oil prices. Using daily data from February 1990 to July 2025, positive and negative bubbles in the short-, medium-, and long-term horizons are first detected. Then, a nonparametric causality-in-quantiles framework is employed to assess predictability at different levels of oil bubbles. The results show that both shocks predict the entire conditional distributions of all bubble indicators. Central bank information shocks carry relatively a stronger predictive power than monetary policy surprises. In addition, the causal effect of these two shocks is higher for negative bubbles than positive ones, especially in the short-term. These findings suggest that central bank information shocks matter more than central bank information shocks to oil-market investors and traders when trying to predict impending crashes and recoveries in the oil market.

Suggested Citation

  • Onur Polat & Rangan Gupta & Mariem Brahim & Elie Bouri, 2025. "Predicting Oil Price Bubbles: Monetary Policy versus Central Bank Information Shocks," Working Papers 202545, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202545
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    Keywords

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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