IDEAS home Printed from https://ideas.repec.org/p/iim/iimawp/14557.html
   My bibliography  Save this paper

Global Risk and Demand for Gold by Central Banks

Author

Listed:
  • Gopalakrishnan, Balagopal
  • Mohapatra, Sanket

Abstract

This paper examines the influence of global risk on the holding of gold by central banks based on annual data for 100 countries during 1990-2015. We use a dynamic panel generalized method of moments (GMM) model to estimate this effect, controlling for a variety of domestic factors. Consistent with portfolio diversification and perception of gold as a safe asset, we find that the gold holdings of central banks increase in response to higher global risk. This effect is larger for high-income countries than for developing countries. Moreover, greater capital account openness is associated with a stronger response of central banks’ gold holding to global risk, while a higher ratio of overall reserves to imports is associated with a weaker response. We also find evidence that the sensitivity depends on whether the currency regime followed is fixed or floating, with higher responsiveness in the case of fixed rate regimes. The baseline results are robust to alternate estimation methods, exclusion of crisis years, active and passive management of gold reserves and additional controls. These findings suggest that central banks adjust their gold holdings in response to changes in global risk conditions, with the magnitude of response depending on reserve management capacity and country-specific vulnerabilities.

Suggested Citation

  • Gopalakrishnan, Balagopal & Mohapatra, Sanket, 2017. "Global Risk and Demand for Gold by Central Banks," IIMA Working Papers WP 2017-01-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
  • Handle: RePEc:iim:iimawp:14557
    as

    Download full text from publisher

    File URL: https://web.iima.ac.in/assets/snippets/workingpaperpdf/12043880022017-01-01.pdf
    File Function: English Version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Aizenman, Joshua & Inoue, Kenta, 2013. "Central banks and gold puzzles," Journal of the Japanese and International Economies, Elsevier, vol. 28(C), pages 69-90.
    2. Philip Lane & Dominic Burke, 2001. "The Empirics of Foreign Reserves," Open Economies Review, Springer, vol. 12(4), pages 423-434, October.
    3. Bussière, Matthieu & Cheng, Gong & Chinn, Menzie D. & Lisack, Noëmie, 2015. "For a few dollars more: Reserves and growth in times of crises," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 127-145.
    4. Katsiaryna Svirydzenka, 2016. "Introducing a New Broad-based Index of Financial Development," IMF Working Papers 16/5, International Monetary Fund.
    5. Miranda-Agrippino, Silvia & Rey, Hélène, 2015. "World Asset Markets and the Global Financial Cycle," CEPR Discussion Papers 10936, C.E.P.R. Discussion Papers.
    6. Alicia Garcia-Herrero & Alvaro Ortiz, 2006. "The Role of Global Risk Aversion in Explaining Sovereign Spreads," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2006), pages 125-155, August.
    7. Sari, Ramazan & Soytas, Ugur & Hacihasanoglu, Erk, 2011. "Do global risk perceptions influence world oil prices?," Energy Economics, Elsevier, vol. 33(3), pages 515-524, May.
    8. Erlend Nier & Tahsin Saadi Sedik & Tomas Mondino, 2014. "Gross Private Capital Flows to Emerging Markets; Can the Global Financial Cycle Be Tamed?," IMF Working Papers 14/196, International Monetary Fund.
    9. Silvia Miranda-Agrippino & Hélène Rey, 2015. "US Monetary Policy and the Global Financial Cycle," NBER Working Papers 21722, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iim:iimawp:14557. 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: (). General contact details of provider: http://edirc.repec.org/data/eciimin.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.