When Will Occur the Crude Oil Bubbles?

Abstract

In this paper, we apply a recursive unit root test to investigate whether there exist multiple bubbles in crude oil price. The method is best suited for a practical implementation of a time series and delivers a consistent date-stamping strategy for the origination and termination of multiple bubbles. The empirical result indicates that there exist six bubbles during 1986–2016 when the oil price deviate from its intrinsic value based on market fundamentals. Specifically, oil price contains the fundamentals and bubble components. The dates of the bubbles correspond to specific events in the politics and financial markets. The authorities should actively fight speculative bubbles or just observe their evolutions and speculation activities may decrease, which is favour of the stabilisation of the staple commodities including crude oil price. These findings have important economic and policy implications to recognise the cause of bubbles and take corresponding measures to reduce the impact on the real economy cause of the fluctuation of crude oil price.