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Dynamics of oil price, precious metal prices and the exchange rate in the long-run

Sefa Awaworyi Churchill, John Inekwe (), Kris Ivanovski and Russell Smyth ()

Energy Economics, 2019, vol. 84, issue C

Abstract: We examine the relationship between the oil price, prices of precious metals (gold, silver, and platinum) and the US dollar/British Pound exchange rate using parametric and non-parametric modelling over a 135-year period. For the parametric model, we employ a two-regime threshold vector error correction model (TVECM) and find non-linearity and asymmetries in the long-term relationship between the oil-gold price and oil-silver price pairs during the ‘typical regime’, in which the majority of observations lie. Non-linear Granger causality suggests evidence of bidirectional and unidirectional causality. For the non-parametric model, we employ Local Linear (LL) non-parametric regression to relax the assumptions regarding functional form. The relationship between the oil price and each of the precious metal prices and the exchange rate exhibit non-linearities. The relationship between precious metal prices and the oil price is positive and generally increasing over time, while the LL estimates for the exchange rate are negative and then positive and highly non-linear.

Keywords: Oil prices; Precious metal prices; Exchange rate; ARDL (search for similar items in EconPapers)
JEL-codes: E32 O13 Q4 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:84:y:2019:i:c:s014098831930297x

DOI: 10.1016/j.eneco.2019.104508

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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