Recommend    |    Subscriber Services    |    Feedback    |     Subscribe Online
 
 
 
 
IUP Publications Online
Home About IUP Magazines Journals Books Archives
     
 
The IUP Journal of Financial Risk Management
A Cointegration and Causation Study of Gold Prices, Crude Oil Prices and Exchange Rates
:
:
:
:
:
:
:
:
:
 
 
 
 
 
 
 

Using daily data for a period of nine years from May 2005 to June 2014, the present study examines the long-run and short-run interdependence between USD/INR exchange rates, gold prices and crude oil prices. The preliminary observation suggests that the three series are non-stationary at level, but stationary at first difference, which suggests possiblity of long-run interdependence between the series. Therefore, the long-run relationship is tested using Johansen cointegration test. However, the results reveal there is no long-run interdependence between the variables. The study also examines the short-run relationship using Granger causality test and VAR model. The results reveal that a bidirectional Granger causality exists between crude oil and USD/INR exchange rate, whereas unidirectional Granger causality runs from crude oil to gold price series.

 
 
 

After liberalization and globalization, the focus of many researchers has been on the study of behavior of financial variables. Study of movements of and relationship between stock indices, exchange rates, gold prices, silver prices, crude oil prices, futures and options, currency futures and options, etc. are the key areas of attraction for these researchers. Among these, gold and crude oil are the two commodities which are considered to be key commodities for any economy. Gold was earlier considered as the standard currency as it was widely accepted for international payments. It is also an important part of reserve fund maintained by the central banks of all the countries. Crude oil is also an important commodity that affects the economy of every country. The higher price of crude will benefit the oil producing and exporting economies and affect negatively the countries which import oil for their domestic consumption. Oil production and consumption are used as an indicator of economic activity. Changes in its price quickly affects the consumer prices (inflation), leading to shifts in monetary policy which will have a significant impact on the economy.

 
 
 

Financial Risk Management Journal, Cointegration and Causation Study, Gold Prices, Crude Oil Prices, Exchange Rates