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Gold and crude oil prices after the great moderation

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  • Sephton, Peter
  • Mann, Janelle

Abstract

Previous studies have reported that gold prices and crude oil prices seem to be related, with causality generally running from oil prices to gold prices. This paper revisits the question using non-linear threshold cointegration methods. It examines how a shock to oil prices affects gold prices, with the impacts shown to depend on both the size of the shock and the region within which the system lies when the shock occurs. This simple, yet novel result helps to explain why earlier studies found conflicting evidence on whether gold and crude prices share a long-run relationship. The empirical findings also suggest that energy policies should not be designed without consideration for their interaction with financial policies.

Suggested Citation

  • Sephton, Peter & Mann, Janelle, 2018. "Gold and crude oil prices after the great moderation," Energy Economics, Elsevier, vol. 71(C), pages 273-281.
    • Handle: RePEc:eee:eneeco:v:71:y:2018:i:c:p:273-281
    DOI: 10.1016/j.eneco.2018.02.022
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    More about this item

    Keywords

    Threshold cointegration; Error correction equation; Multivariate adaptive regression splines; Gold price; Brent oil price;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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