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Nonlinear dynamics of gold and the dollar

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  • He, Qing
  • Guo, Yongxiu
  • Yu, Jishuang

Abstract

Notwithstanding the widely held view that gold and the dollar are negatively correlated, we ask when and why gold and the dollar sometimes depart from their typical inverse relationship and go so far as to move in parallel. Using a threshold vector error correction model (VECM), we investigate the nonlinear relationship between gold and the dollar. We find evidence of short run positive correlation between gold and the dollar under extreme market conditions. Our result suggests that the hedging property of gold is influenced by the gold-dollar threshold process.

Suggested Citation

  • He, Qing & Guo, Yongxiu & Yu, Jishuang, 2020. "Nonlinear dynamics of gold and the dollar," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:ecofin:v:52:y:2020:i:c:s1062940820300577
    DOI: 10.1016/j.najef.2020.101160
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    More about this item

    Keywords

    Gold; Exchange rate; Nonlinear dynamics; Threshold cointegration;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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