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Persistence in Precious Metal Prices: A Fractional Integration Approach with Structural Breaks

Author

Listed:
  • Luis A.Gil-Alana

    (University of Navarra, Faculty of Economics and NCID)

  • Shinhye Chang

    (Department of Economics, University of Pretoria)

  • Mehmet Balcilar

    (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus , via Mersin 10,Turkey; Department of Economics, University of Pretoria, Pretoria, 0002, South Africa.)

  • Goodness C. Aye

    (Department of Economics, University of Pretoria)

  • Rangan Gupta

    (Department of Economics, University of Pretoria)

Abstract

This paper analyses the statistical properties of five major precious metal prices (gold, silver, rhodium, palladium and platinum) based the fractional integration modelling framework while identifying structural breaks. We use monthly data from 1972:1 to 2013:12. Our results indicate orders of integration that are equal to or greater than 1 (long memory) in all cases except for silver and palladium where we find strong evidence of mean reversion with a parametric and semiparametric method, respectively. Given some inconsistencies between the parametric and semiparametric results, we suspect the possibility of structural breaks and our results show evidence of structural breaks in almost all cases except palladium. However, after accounting for structural breaks, we find evidence of increase in the degree of persistence across time in the majority of cases. This implies that in general, shocks to these precious metals will be permanent requiring strong policy measures to return the series to their equilibrium levels in the event of negative shocks.

Suggested Citation

  • Luis A.Gil-Alana & Shinhye Chang & Mehmet Balcilar & Goodness C. Aye & Rangan Gupta, 2014. "Persistence in Precious Metal Prices: A Fractional Integration Approach with Structural Breaks," Working Papers 201458, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201458
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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