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

Journal Publication ResearchOnline@JCU
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.

Journal

Journal of International Financial Markets, Institutions and Money

Publication Name

N/A

Volume

60

ISBN/ISSN

1873-0612

Edition

N/A

Issue

N/A

Pages Count

15

Location

N/A

Publisher

Elsevier

Publisher Url

N/A

Publisher Location

N/A

Publish Date

N/A

Url

N/A

Date

N/A

EISSN

N/A

DOI

10.1016/j.intfin.2018.12.014