Monetary policy uncertainty and the price bubbles in energy markets

Abstract

We examine the relationship between the monetary policy uncertainty (MPU) and the price bubbles in U.S. oil futures, including WTI crude oil future, heating oil future, and gasoline future. The Log Periodic Power Law Singularity (LPPLS) model is firstly used to analyze and validate the price bubbles of U.S. oil futures. We find that (1) the timing of local peaks of MPU closely aligns with the occurrence of price bubbles in U.S. oil futures, (2) MPU is significantly correlated with crude oil future price bubble but not with heating oil future (or gasoline future) price bubble, and MPU significantly amplify the magnitude of price bubble risk for crude oil future, (3) MPU is an effective set of factors for machine-learning based identification of all three U.S. oil future price bubbles in the non-linear model, even though the impact of MPU on heating oil (or gasoline) future price bubble is not significant in logit regression as the linear model. Collectively, our findings highlight the significance of MPU in relation to price bubbles in U.S. oil futures, offering new insights for investors and policymakers to explore the (non)-linear relationship between MPU and price bubbles in energy markets.