Dynamics of crude oil and gold price post 2008 global financial crisis – New evidence from threshold vector error-correction model

Kakali Kanjilal and Sajal Ghosh ()

Resources Policy, 2017, vol. 52, issue C, 358-365

Abstract: The study investigates the dynamic relationship of global crude oil and gold price in a two-regime vector error-correction model with a single cointegrating vector and a threshold effect on error-correction terms as proposed by Hansen and Seo (2002). The study is conducted with weekly spot prices of Brent crude oil and gold for the period January 2, 2009 to November 20, 2015. The empirical results suggest the effectiveness of threshold cointegration model over a linear cointegration model signifying non-linearity in long-term relationship between gold and oil price. It also establishes different long-run and short-run dynamics of gold and oil in two regimes, termed as ‘typical’ and ‘extreme’ regimes based on the threshold parameter. The study reveals a lead lag relationship between gold and oil price suggesting ‘gold’ as investors’ safe haven against inflation. This phenomenon, however, exists only in a typical regime. In contrast, in an extreme regime, with gold price dominating the market, investors’ are found to switch between gold and oil in order to diversify the portfolio risk. This indicates that the relationship between gold and oil price is non-linear and asymmetric. The study surpasses previous studies by establishing the fact that the relationship between gold and oil is regime dependent, and hence does not remain constant during the entire period of the study. The findings have important implications for policy makers and investors. The study also demonstrates robustness in empirical findings by maintaining profound statistical congruency.

Keywords: Threshold cointegration; Threshold vector error correction; Non linearity; Regime dependent; Gold price; Oil price (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0301420716304251
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:52:y:2017:i:c:p:358-365

DOI: 10.1016/j.resourpol.2017.04.001

Access Statistics for this article

Resources Policy is currently edited by R. G. Eggert

More articles in Resources Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().