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Do gold prices respond to real interest rates? Evidence from the Bayesian Markov Switching VECM model

Author

Listed:
  • Apergis, Nicholas
  • Cooray, Arusha
  • Khraief, Naceur
  • Apergis, Iraklis
Abstract
The goal of this paper is to examine the transmission dynamics between the real interest rate and gold prices in the G7. The methodology follows the Bayesian Markov-Switching Vector Error-Correction (MS-VECM) model, along with regime-dependent impulse response functions, spanning the period 1975–2016. The findings suggest a positive association between gold prices and real interest rates, with the estimates remaining consistently positive and statistically significant across all G7 countries. The results indicate that gold prices can provide hedging services against real interest rate movements mainly during recessionary times. Our results continue to be robust when we extend the bivariate version of our modeling approach to include more drivers for gold prices.

Suggested Citation

  • Apergis, Nicholas & Cooray, Arusha & Khraief, Naceur & Apergis, Iraklis, 2019. "Do gold prices respond to real interest rates? Evidence from the Bayesian Markov Switching VECM model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 60(C), pages 134-148.
    • Handle: RePEc:eee:intfin:v:60:y:2019:i:c:p:134-148
    DOI: 10.1016/j.intfin.2018.12.014
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    Citations

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    Cited by:

    1. Zhang, Pinyi & Ci, Bicong, 2020. "Deep belief network for gold price forecasting," Resources Policy, Elsevier, vol. 69(C).
    2. Dibooglu, Sel & Cevik, Emrah I. & Gillman, Max, 2022. "Gold, silver, and the US dollar as harbingers of financial calm and distress," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 200-210.
    3. Chen, Ying & Zhu, Xuehong & Li, Hailing, 2022. "The asymmetric effects of oil price shocks and uncertainty on non-ferrous metal market: Based on quantile regression," Energy, Elsevier, vol. 246(C).
    4. Golitsis, Petros & Gkasis, Pavlos & Bellos, Sotirios K., 2022. "Dynamic spillovers and linkages between gold, crude oil, S&P 500, and other economic and financial variables. Evidence from the USA," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    5. Ramez Abubakr Badeeb & Jeremy Clark & Abey P. Philip, 2021. "The Nonlinear Effects of Oil Rent Dependence on Malaysian Manufacturing: Implications from Structural Change using a Markov-Regime Switching Model," Working Papers in Economics 21/11, University of Canterbury, Department of Economics and Finance.
    6. Rana, Hafiz Muhammad Usman & O'Connor, Fergal, 2023. "Domestic macroeconomic determinants of precious metals prices in developed and emerging economies: An international analysis of the long and short run," International Review of Financial Analysis, Elsevier, vol. 89(C).
    7. Valadkhani, Abbas & Nguyen, Jeremy & Chiah, Mardy, 2022. "When is gold an effective hedge against inflation?," Resources Policy, Elsevier, vol. 79(C).
    8. Chen, Peng & Miao, Xinru & Tee, Kai-Hong, 2023. "Do gold prices respond more to uncertainty shocks at the zero lower bound?," Resources Policy, Elsevier, vol. 86(PA).
    9. Semeyutin, Artur & Downing, Gareth, 2022. "Co-jumps in the U.S. interest rates and precious metals markets and their implications for investors," International Review of Financial Analysis, Elsevier, vol. 81(C).
    10. Pan, Xiongfeng & Uddin, Md. Kamal & Saima, Umme & Guo, Shucen & Guo, Ranran, 2019. "Regime switching effect of financial development on energy intensity: Evidence from Markov-switching vector error correction model," Energy Policy, Elsevier, vol. 135(C).
    11. Iwanicz-Drozdowska Małgorzata & Rogowicz Karol & Smaga Paweł, 2023. "Market-moving events and their role in portfolio optimization of generations X, Y, and Z," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 59(4), pages 371-397, December.
    12. Su, Chi-Wei & Pang, Lidong & Umar, Muhammad & Lobonţ, Oana-Ramona & Moldovan, Nicoleta-Claudia, 2022. "Does gold's hedging uncertainty aura fade away?," Resources Policy, Elsevier, vol. 77(C).
    13. Siti Aminah Mainal & Arina Haziqah Mohd Selamat & Nur Dinie Syafia Abd Majid & Khaliff Nabill Irfan Noorzee, 2023. "Factors Influencing the Price of Gold in Malaysia," Information Management and Business Review, AMH International, vol. 15(3), pages 195-205.
    14. Liu, Chunbo & Zhang, Xuan & Zhou, Zhiping, 2023. "Are commodity futures a hedge against inflation? A Markov-switching approach," International Review of Financial Analysis, Elsevier, vol. 86(C).
    15. Beladi, Hamid & Trinh, Cong Tam & Chao, Chi-Chur, 2023. "Gold prices, cultural factors, and Covid-19 pandemic: An international analysis," Research in International Business and Finance, Elsevier, vol. 66(C).

    More about this item

    Keywords

    Gold; Interest rates; MS-VECM model;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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