Journal of Economics and Financial Analysis, 8 (1), pp. 35-56, [2024]
URI: https://ojs.tripaledu.com/jefa/article/view/89/98

The Dynamic Linkages among Gold Prices, Stock Prices, the Exchange Rate and Interest Rate in South Africa


Competition Commission South Africa, South Africa


Competition Commission South Africa, South Africa


DOI: http://dx.doi.org/10.1991/jefa.v8i1.a65

Abstract

The fundamental aim of this study is to examine the intricate interplay among gold prices, interest rates, exchange rates, and stock price indices within the context of South Africa. To achieve this, both a conventional Vector Autoregression Model and a Bayesian Vector Autoregression Model were applied to monthly data spanning from June 1995 to December 2022. The findings indicate that a positive shock in stock prices triggers positive reactions in exchange rates, gold prices, and interest rates. Conversely, a positive shock in interest rates induces negative reactions in both gold prices and stock prices. Moreover, a positive shock in gold prices elicits negative responses in both interest rates and stock prices. Additionally, a positive shock in exchange rates prompts positive reactions in gold prices and interest rates, while simultaneously resulting in a negative response in stock prices.

Keywords

Exchange Rate; Interest Rate; Gold Market; Stock Market; Bayesian Analysis; Vector Autoregression.

JEL Classification

C11, E3, F31, G11, Q30.

Full Text:

PDF

References

Abdullah, A. & Bakar, M.J.A. (2015). The Application of Gold Price, Interest Rates and Inflation Expectations in Capital Markets. International Journal of Economics and Finance, 7(2), pp. 293-302.

Akbar, M., Iqbal, F. & Noor, F. (2019). Bayesian analysis of dynamic linkages among gold price, stock prices, exchange rate and interest rate in Pakistan. Resources Policy, 62, pp. 154-164.

Aleemi, A.R., Tariq, M. & Ahmed, S. (2016). The role of gold prices, exchange rate and interest rate on the continiuty of inflation in Pakistan. Pakistan Business Review, pp. 37-54.

Ansari, M.G. & Sensarma, R. (2019). US monetary policy, oil and gold prices: Which has a greater impact on BRICS stock markets?. Economic Analysis and Policy, 64, pp. 130-151.

Bai, J. & Perron, P. (1999). Estimating and testing linear models with multiple structural. Econometrica, 66(1), pp. 47-78.

Balcilar, M., Ozdemir, Z.A., Shahbaz, M. & Gunes, S. (2017). Does inflation cause gold market price changes? evidence on the G7 countries from the tests of nonparametric quantile causality in mean and variance. Applied Economics, 50(17), pp. 1891-1909.

Batten, J.A., Ciner, C. & Lucey, B.M. (2014). On the economic determinants of the gold-inflation relation. Resources Policy, 41, pp. 101-108.

Cepni, O., Dul, W., Gupta, R. & Wohar, M.E. (2021). The dynamics of U.S. REITs returns to uncertainty shocks: A proxy SVAR appraoch. Research in International Business and Finance, 58, pp. 1-22.

Cepni, O. & Gupta, R. 2021. Time-varying impact of monetary policy shocks on US stock returns: The role of investor sentiment. North American Journal of Economics and Finance, 58, pp. 1-17.

Doan, T., Litterman, R. & Sims, C. (1984). Forecasting and conditional projection using realsitic prior distributions. Econometric Reviews, 3(1), pp. 1-100.

Gelman, A., Carlin, J.B., Stern, H.S., Dunson, D.B., Vehtari, A., and Rubin, D.B. (2021). Bayesian Data Analysis. 3rd ed.

Ghosh, D., Levin, E.J., Macmillan, P. & Wright, R.E. (2004). Gold as an inflation hedge?. Studies in Economics and Financ. 22(1), pp. 1-25.

Giannone, D., Lenza, M. & Primiceri, G.R. (2015). Prior Selection for Vector Autoregressions. The Review of Economics and Statistics, 97(2), pp. 436-451.

Jain, A. & Biswal, P. (2016). Dynamic linkages among oil price, gold price,exchange rate,and stock market in India. Resources Policy, 49, pp. 179-185.

Johansen, S. & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), pp. 169-210.

Kilian, L. & Lutkepohl, H. (2017). Structural Vector Autoregressive Analysis. Cambridge University Press.

Koop, G.M. (2013). Forecasting with Medium and Large Bayesian VARS. Journal of Applied Econometric. 28(2), pp. 177-203.

Kumar, S., Choudhary, S., Singh, G. & Singhal, S. (2021). Crude oil, gold, natural gas, exchange rate and indian stock market: Evidence from the asymmetric nonlinear ARDL model. Resources Policy, 73, pp. 1-7.

Kuschnig, N. & Vashold, L. (2019). BVAR: Bayesian Vector Autoregressions with Hierarchical Prior Selection in R. https://cran.r-project.org/web/packages/BVAR/vignettes/article.pdf.

Litterman, R.B. (1980). A Bayesian Procedure for Forecasting with Vector Autoregressions. MIT Working Paper, 275.

Litterman, R.B. (1986). Forecasting with Bayesian Vector Autoregressions - Five Years of Experience. Journal of Business & Economic Statistics, 4(1), pp. 25-38.

Moreira, R.R., Chaiboonsri, C. & Chaitip, P. (2015). Performing a Bayesian VAR to analyze how monetary policy's credibility is affected and affects over time: the Brazilian experience. Procedia Economics and Finance, 24, pp. 444-450.

Shaikh, I. & Vallabh, P. (2022). Monetary policy uncertainty and gold price in India: Evidence from Reserve Bank of India’s Monetary Policy Committee (MPC) review. Resources Policy, 76, pp. 1-13.

Singhal, S., Choudhary, S. & Biswal, P.C. (2019). Return and volatility linkages among International crude oil price, gold price, exchange rate and stork markets: Evidence from Mexico. Resources Policy, 60, pp. 255-261.

Sinton, J. (2014). An Empirical Investigation of the Causal Relationship between Gold Price, Exchange Rate Changes and Jakarta Composite Index. Proceedings of World Business and Social Science Research Conference 14 - 16 April 2014, Hotel Crowne Plaza Republique, Paris, France, ISBN: 978-1-922069-47-4.

Wang, Y.S. & Chueh, Y.L. (2013). Dynamic transmission effects between the interest rate, the US Dollar, and gold and crude oil prices. Economic Modelling, 30, pp. 792-798.

Yildirim, H., Alola, A.A. & Sengelen, H.E. (2021). The causal nexus of interest rate policy and gold market: The case of Turkey. Journal of Public Affairs, 21, pp. 1-6.

Zhu, Y., Fan, J. & Tucker, J. (2018). The impact of monetary policy on gold price dynamics. Research in International Business and Finance, 44, pp. 319-331.




Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.