Do gold prices respond to real interest rates? Evidence from the Bayesian Markov Switching VECM model
Journal Publication ResearchOnline@JCUAbstract
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
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60
ISBN/ISSN
1873-0612
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Pages Count
15
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Publisher
Elsevier
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DOI
10.1016/j.intfin.2018.12.014