Causality and volatility patterns between gold prices and exchange rates
Joscha Beckmann (),
Robert Czudaj () and
The North American Journal of Economics and Finance, 2015, vol. 34, issue C, 292-300
This paper provides a new perspective on the link between gold prices and exchange rates. Based on gold prices denominated in five different currencies and the related bilateral exchange rates, we put causalities and short-run volatility transmission under closer scrutiny. We provide evidence that the identification of a strong hedge function of gold requires an explicit modeling of the volatility component. For all currencies, exchange rate depreciations initially have a negative impact on the gold price after one day which turns out to be positive after two days in most of the cases. Contrary to previous studies, our results point to a specific role of the dollar in the context of gold-exchange rate relationships: volatility of dollar exchange rates more frequently results in strong hedging functions of gold prices. Furthermore, the gold price denominated in the US dollar tends to increase after a depreciation of the dollar.
Keywords: Exchange rates; GARCH; Gold; Hedge; Volatility (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:34:y:2015:i:c:p:292-300
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