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

Onur Polat (), Rangan Gupta (), Mariem Brahim () and Elie Bouri ()
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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

No 202545, Working Papers from University of Pretoria, Department of Economics

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.

Keywords: Positive and Negative Bubbles; Multiscale; Oil Market; Monetary Policy and Central Bank Information Shocks; Causality-in-Quantiles Test (search for similar items in EconPapers)
JEL-codes: C22 E50 Q41 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2025-12
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202545

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