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The price of gold and the exchange rate: Evidence from threshold cointegration and threshold granger causality analyses for Turkey

Author

Listed:
  • Burak Gürış

    (Istanbul University Department of Econometrics, Faculty of Economics, Istanbul, Turkey)

  • Burcu Kiran

    (Istanbul University Department of Econometrics, Faculty of Economics, Istanbul, Turkey)

Abstract

This paper explores the relationship between gold prices and the US dollar/Turkish lira exchange rate between 1990–2011 by using cointegration and Granger causality analyses. The empirical findings indicate that there is a threshold cointegration relationship between the two variables. The threshold value obtained from the estimation of threshold vector error correction model equals −3.268. The Granger test indicates that there is evidence of a bi-directional causal relationship between gold prices and the exchange rate, except when the threshold parameter exceeds the threshold value in the exchange rate equation. According to these findings, gold price can be used as a hedge against the exchange rate. However, since this relationship disappears above the threshold value, gold is only a weak hedge against exchange rate fluctuations.

Suggested Citation

  • Burak Gürış & Burcu Kiran, 2014. "The price of gold and the exchange rate: Evidence from threshold cointegration and threshold granger causality analyses for Turkey," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(1), pages 91-101, March.
    • Handle: RePEc:aka:aoecon:v:64:y:2014:i:1:p:91-101
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    Citations

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    Cited by:

    1. Yahya, Muhammad & Kanjilal, Kakali & Dutta, Anupam & Uddin, Gazi Salah & Ghosh, Sajal, 2021. "Can clean energy stock price rule oil price? New evidences from a regime-switching model at first and second moments," Energy Economics, Elsevier, vol. 95(C).
    2. Sephton, Peter & Mann, Janelle, 2018. "Gold and crude oil prices after the great moderation," Energy Economics, Elsevier, vol. 71(C), pages 273-281.
    3. Kanjilal, Kakali & Ghosh, Sajal, 2017. "Dynamics of crude oil and gold price post 2008 global financial crisis – New evidence from threshold vector error-correction model," Resources Policy, Elsevier, vol. 52(C), pages 358-365.
    4. Awaworyi Churchill, Sefa & Inekwe, John & Ivanovski, Kris & Smyth, Russell, 2019. "Dynamics of oil price, precious metal prices and the exchange rate in the long-run," Energy Economics, Elsevier, vol. 84(C).

    More about this item

    Keywords

    threshold cointegration; threshold vector error correction model; threshold Granger causality; gold price; exchange rate; Turkey;
    All these keywords.

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • E0 - Macroeconomics and Monetary Economics - - General

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