Persistence in Precious Metal Prices: A Fractional Integration Approach with Structural Breaks

Luis Gil-Alana, Shinhye Chang (), Mehmet Balcilar, Goodness Aye () and Rangan Gupta
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Shinhye Chang: Department of Economics, University of Pretoria
Goodness Aye: Department of Economics, University of Pretoria

No 201458, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper analyses the statistical properties of five major precious metal prices (gold, silver, rhodium, palladium and platinum) based the fractional integration modelling framework while identifying structural breaks. We use monthly data from 1972:1 to 2013:12. Our results indicate orders of integration that are equal to or greater than 1 (long memory) in all cases except for silver and palladium where we find strong evidence of mean reversion with a parametric and semiparametric method, respectively. Given some inconsistencies between the parametric and semiparametric results, we suspect the possibility of structural breaks and our results show evidence of structural breaks in almost all cases except palladium. However, after accounting for structural breaks, we find evidence of increase in the degree of persistence across time in the majority of cases. This implies that in general, shocks to these precious metals will be permanent requiring strong policy measures to return the series to their equilibrium levels in the event of negative shocks.

Keywords: Precious metal; unit root; long memory; structural break (search for similar items in EconPapers)
JEL-codes: C14 C22 O13 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2014-10
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Related works:
Journal Article: Persistence of precious metal prices: A fractional integration approach with structural breaks (2015)
Working Paper: Persistence of precious metal prices: a fractional integration approach with structural breaks (2015)
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