Granger predictability of real oil prices by us money and inflation in Markov-switching regimes

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F25840886%3A_____%2F25%3AN0000001" target="_blank" >RIV/25840886:_____/25:N0000001 - isvavai.cz</a>

Result on the web

<a href="https://link.springer.com/article/10.1007/s40822-024-00305-8" target="_blank" >https://link.springer.com/article/10.1007/s40822-024-00305-8</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1007/s40822-024-00305-8" target="_blank" >10.1007/s40822-024-00305-8</a>

Result language

angličtina

Original language name

Granger predictability of real oil prices by us money and inflation in Markov-switching regimes

Original language description

This paper presents new evidence that US money supply growth and inflation rates Granger predict real oil prices in a two-regime Markov switching vector autoregression (MS-VAR) model. An asset pricing theory motivates the empirical work by showing how jumps in real oil prices approximately follow jumps in the discount factor to keep constant the competitive return to oil capital. Using monthly data from January 1978 to June 2024, we consider alternative data combinations of US money supply growth rates, US inflation rates, and real oil prices to establish volatility regimes through goodness of fit testing. We set baseline model as that model with the highest likelihood in explaining the real oil price, which combines M2, the CPI less energy prices (CPIE), and real oil prices. Robustness considers two M2 variants combined with the CPIE that have the next highest likelihoods, for two alternative models. In the high volatility regime, results show robust Granger predictability of real oil prices by the baseline M2 and the M2 variants. In the low volatility regime for the baseline model, the CPIE inflation rate Granger predicts real oil prices. The paper contributes these new MS-VAR results that combined with the theory provide nuanced non-conventional support that monetary factors contribute to heightened real oil price episodes in volatile times as well as in calmer periods.

Czech name

—

Czech description

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Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

—

OECD FORD branch

50200 - Economics and Business

Project

—

Continuities

N - Vyzkumna aktivita podporovana z neverejnych zdroju

Publication year

2025

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

Eurasian Economic Review

ISSN

2147-429X

e-ISSN

2147-429X

Volume of the periodical

15

Issue of the periodical within the volume

March

Country of publishing house

DE - GERMANY

Number of pages

24

Pages from-to

29-52

UT code for WoS article

001405515800001

EID of the result in the Scopus database

2-s2.0-85217246082