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The yen for gold

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  • Wang, Kuan-Min
  • Lee, Yuan-Ming

Abstract

In this article, we examine whether gold could be an exchange rate hedge in Japan, using data from 1986 to 2007. In the literature on this area, most research focuses on the linear relationship--rather than the non-linear one--between gold returns and the exchange rate fluctuation of the Japanese yen. In the present paper, we use the depreciation rate of the yen as a threshold variable to distinguish between a high depreciation regime and a low depreciation (or appreciation) regime. With this specification, we build a threshold vector autoregressive model to investigate the causality between the gold return and the yen depreciation rate. We find that when the yen depreciation rate is greater than 2.62%, investing in gold could avoid the depreciation loss. Therefore, we conclude that the effectiveness of gold as an exchange rate hedge depends on the depreciation rate of the yen. This finding could benefit both the Japanese monetary authority and investors who hold Japanese yen in their portfolios.

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Bibliographic Info

Article provided by Elsevier in its journal Resources Policy.

Volume (Year): 36 (2011)
Issue (Month): 1 (March)
Pages: 39-48

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Handle: RePEc:eee:jrpoli:v:36:y:2011:i:1:p:39-48

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Web page: http://www.elsevier.com/locate/inca/30467

Related research

Keywords: Gold return Exchange rate hedge Threshold model Asymmetric causality;

References

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Citations

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Cited by:
  1. Beckmann, Joscha & Czudaj, Robert, 2013. "Gold as an inflation hedge in a time-varying coefficient framework," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 208-222.
  2. Thai-Ha Le & Youngho Chang, 2011. "Oil and gold: correlation or causation?," Economics Bulletin, AccessEcon, vol. 31(3), pages A31.
  3. Le, Thai-Ha & Chang, Youngho, 2011. "Dynamic relationships between the price of oil, gold and financial variables in Japan: a bounds testing approach," MPRA Paper 33030, University Library of Munich, Germany.
  4. Reboredo, Juan C., 2013. "Is gold a safe haven or a hedge for the US dollar? Implications for risk management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2665-2676.
  5. Baur, Dirk G., 2011. "Explanatory mining for gold: Contrasting evidence from simple and multiple regressions," Resources Policy, Elsevier, vol. 36(3), pages 265-275, September.
  6. Wang, Kuan-Min & Lee, Yuan-Ming & Thi, Thanh-Binh Nguyen, 2011. "Time and place where gold acts as an inflation hedge: An application of long-run and short-run threshold model," Economic Modelling, Elsevier, vol. 28(3), pages 806-819, May.
  7. Thai-Ha Le & Youngho Chang, 2012. "Oil Price Shocks and Gold Returns," Economie Internationale, CEPII research center, issue 131, pages 71-104.

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