The yen for gold
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kyrtsou, Catherine & Labys, Walter C., 2006. "Evidence for chaotic dependence between US inflation and commodity prices," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 256-266, March.
- Sjaastad, Larry A., 2008.
"The price of gold and the exchange rates: Once again,"
Elsevier, vol. 33(2), pages 118-124, June.
- Larry A. Sjaastad, 2007. "The Price of Gold and the Exchange Rates: Once Again," Economics Discussion / Working Papers 07-20, The University of Western Australia, Department of Economics.
- L.A. Sjaastad & F. Scacciavillani, 1995.
"The Price of Gold and the Exchange Rates,"
Economics Discussion / Working Papers
95-14, The University of Western Australia, Department of Economics.
- Behzad T. Diba & Herschel I. Grossman, 1984. "Rational Bubbles in the Price of Gold," NBER Working Papers 1300, National Bureau of Economic Research, Inc.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Kenneth W. Clements & Renee Fry, 2006.
"Commodity Currencies and Currency Commodities,"
Economics Discussion / Working Papers
06-17, The University of Western Australia, Department of Economics.
- Capie, Forrest & Mills, Terence C. & Wood, Geoffrey, 2005. "Gold as a hedge against the dollar," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(4), pages 343-352, October.
- Pindyck, Robert S, 1993.
"The Present Value Model of Rational Commodity Pricing,"
Royal Economic Society, vol. 103(418), pages 511-30, May.
- Pindyck, Robert S., 1991. "The present value model of rational commodity pricing," Working papers 3354-91., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Robert S. Pindyck, 1992. "The Present Value Model of Rational Commodity Pricing," NBER Working Papers 4083, National Bureau of Economic Research, Inc.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
- Davidson, Sinclair & Faff, Robert & Hillier, David, 2003. "Gold factor exposures in international asset pricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(3), pages 271-289, July.
- Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996.
"Efficient Tests for an Autoregressive Unit Root,"
Econometric Society, vol. 64(4), pages 813-36, July.
- Tom Doan, . "GLSDETREND: RATS procedure to perform local to unity GLS detrending," Statistical Software Components RTS00077, Boston College Department of Economics.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
- Tom Doan, . "ERSTEST: RATS procedure to perform Elliott-Rothenberg-Stock unit root tests," Statistical Software Components RTS00066, Boston College Department of Economics.
- Dipak Ghosh & Eric Levin & Robert E Wright & The Centre for Economic Policy Research, .
"Gold as an Inflation Hedge?,"
Working Papers Series
96/10, University of Stirling, Division of Economics.
- Neill Fortune, J., 1987. "The inflation rate of the price of gold, expected prices and interest rates," Journal of Macroeconomics, Elsevier, vol. 9(1), pages 71-82.
- Chappell, David & Dowd, Kevin, 1997. "A Simple Model of the Gold Standard," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 94-105, February.
- Mahdavi, Saeid & Zhou, Su, 1997. "Gold and commodity prices as leading indicators of inflation: Tests of long-run relationship and predictive performance," Journal of Economics and Business, Elsevier, vol. 49(5), pages 475-489.
- Enders, Walter & Siklos, Pierre L, 2001.
"Cointegration and Threshold Adjustment,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 19(2), pages 166-76, April.
- Tom Doan, . "RATS programs to replicate Enders-Siklos(2001) JBES paper on threshold cointegration," Statistical Software Components RTZ00053, Boston College Department of Economics.
- Tom Doan, . "ENDERSIKLOS: RATS procedure to perform Enders-Siklos test for cointegration with threshold effect," Statistical Software Components RTS00064, Boston College Department of Economics.
- Baur, Dirk G. & McDermott, Thomas K., 2010.
"Is gold a safe haven? International evidence,"
Journal of Banking & Finance,
Elsevier, vol. 34(8), pages 1886-1898, August.
- Dirk G. Baur & Thomas K. McDermott, . "Is gold a safe haven? International evidence," The Institute for International Integration Studies Discussion Paper Series iiisdp310, IIIS.
- Robert D. Laurent, 1994. "Is there a role for gold in monetary policy?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Mar, pages 2-14.
When requesting a correction, please mention this item's handle: RePEc:eee:jrpoli:v:36:y:2011:i:1:p:39-48. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.