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Gold and the U.S. Dollar: Tales from the turmoil

Author

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  • Marzo, Massimiliano
  • Zagaglia, Paolo

Abstract

We investigate how the relation between gold prices and the U.S. Dollar has been affected by the recent turmoil in financial markets. We use spot prices of gold and spot bilateral exchange rates against the Euro and the British Pound to study the pattern of volatility spillovers. We estimate the bivariate structural GARCH models proposed by Spargoli e Zagaglia (2008) to gauge the causal relations between volatility changes in the two assets. We also apply the tests for change of co-dependence of Cappiello, Gerard and Manganelli (2005). We document the ability of gold to generate stable comovements with the Dollar exchange rate that have survived the recent phases of market disruption. Our findings also show that exogenous increases in market uncertainty have tended to produce reactions of gold prices that are more stable than those of the U.S. Dollar.

Suggested Citation

  • Marzo, Massimiliano & Zagaglia, Paolo, 2010. "Gold and the U.S. Dollar: Tales from the turmoil," MPRA Paper 22407, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:22407
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    References listed on IDEAS

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    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(1), pages 122-150, February.
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    3. Sjaastad, Larry A. & Scacciavillani, Fabio, 1996. "The price of gold and the exchange rate," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 879-897, December.
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    5. Lorenzo Cappiello & Bruno Gérard & Arjan Kadareja & Simone Manganelli, 2014. "Measuring Comovements by Regression Quantiles," The Journal of Financial Econometrics, Society for Financial Econometrics, vol. 12(4), pages 645-678.
    6. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
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    More about this item

    Keywords

    gold; exchange rates; GARCH; quantile regressions;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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