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

Apergis, Nicholas, Cooray, Arusha, Khraief, Naceur, and 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, 60. pp. 134-148.

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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.

Item ID: 69176
Item Type: Article (Research - C1)
ISSN: 1873-0612
Keywords: Gold, Interest rates, MS-VECM model
Copyright Information: © 2018 Elsevier B.V. All rights reserved.
Date Deposited: 27 Sep 2021 05:19
FoR Codes: 38 ECONOMICS > 3801 Applied economics > 380107 Financial economics @ 40%
38 ECONOMICS > 3801 Applied economics > 380112 Macroeconomics (incl. monetary and fiscal theory) @ 60%
SEO Codes: 15 ECONOMIC FRAMEWORK > 1502 Macroeconomics > 150208 Monetary policy @ 100%
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