Dynamics of oil price, precious metal prices and the exchange rate in the long-run

Sefa Awaworyi Churchill, John Inekwe, Kris Ivanovski, Russell Smyth

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We examine the relationship between the oil price, prices of precious metals (gold, silver, and platinum) and the US dollar/British Pound exchange rate using parametric and non-parametric modelling over a 135-year period. For the parametric model, we employ a two-regime threshold vector error correction model (TVECM) and find non-linearity and asymmetries in the long-term relationship between the oil-gold price and oil-silver price pairs during the ‘typical regime’, in which the majority of observations lie. Non-linear Granger causality suggests evidence of bidirectional and unidirectional causality. For the non-parametric model, we employ Local Linear (LL) non-parametric regression to relax the assumptions regarding functional form. The relationship between the oil price and each of the precious metal prices and the exchange rate exhibit non-linearities. The relationship between precious metal prices and the oil price is positive and generally increasing over time, while the LL estimates for the exchange rate are negative and then positive and highly non-linear.

Original languageEnglish
Article number104508
Number of pages12
JournalEnergy Economics
Volume84
DOIs
Publication statusPublished - Oct 2019

Keywords

  • ARDL
  • Exchange rate
  • Oil prices
  • Precious metal prices

Cite this

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abstract = "We examine the relationship between the oil price, prices of precious metals (gold, silver, and platinum) and the US dollar/British Pound exchange rate using parametric and non-parametric modelling over a 135-year period. For the parametric model, we employ a two-regime threshold vector error correction model (TVECM) and find non-linearity and asymmetries in the long-term relationship between the oil-gold price and oil-silver price pairs during the ‘typical regime’, in which the majority of observations lie. Non-linear Granger causality suggests evidence of bidirectional and unidirectional causality. For the non-parametric model, we employ Local Linear (LL) non-parametric regression to relax the assumptions regarding functional form. The relationship between the oil price and each of the precious metal prices and the exchange rate exhibit non-linearities. The relationship between precious metal prices and the oil price is positive and generally increasing over time, while the LL estimates for the exchange rate are negative and then positive and highly non-linear.",
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Dynamics of oil price, precious metal prices and the exchange rate in the long-run. / Awaworyi Churchill, Sefa; Inekwe, John; Ivanovski, Kris; Smyth, Russell.

In: Energy Economics, Vol. 84, 104508, 10.2019.

Research output: Contribution to journalArticleResearchpeer-review

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AU - Awaworyi Churchill, Sefa

AU - Inekwe, John

AU - Ivanovski, Kris

AU - Smyth, Russell

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N2 - We examine the relationship between the oil price, prices of precious metals (gold, silver, and platinum) and the US dollar/British Pound exchange rate using parametric and non-parametric modelling over a 135-year period. For the parametric model, we employ a two-regime threshold vector error correction model (TVECM) and find non-linearity and asymmetries in the long-term relationship between the oil-gold price and oil-silver price pairs during the ‘typical regime’, in which the majority of observations lie. Non-linear Granger causality suggests evidence of bidirectional and unidirectional causality. For the non-parametric model, we employ Local Linear (LL) non-parametric regression to relax the assumptions regarding functional form. The relationship between the oil price and each of the precious metal prices and the exchange rate exhibit non-linearities. The relationship between precious metal prices and the oil price is positive and generally increasing over time, while the LL estimates for the exchange rate are negative and then positive and highly non-linear.

AB - We examine the relationship between the oil price, prices of precious metals (gold, silver, and platinum) and the US dollar/British Pound exchange rate using parametric and non-parametric modelling over a 135-year period. For the parametric model, we employ a two-regime threshold vector error correction model (TVECM) and find non-linearity and asymmetries in the long-term relationship between the oil-gold price and oil-silver price pairs during the ‘typical regime’, in which the majority of observations lie. Non-linear Granger causality suggests evidence of bidirectional and unidirectional causality. For the non-parametric model, we employ Local Linear (LL) non-parametric regression to relax the assumptions regarding functional form. The relationship between the oil price and each of the precious metal prices and the exchange rate exhibit non-linearities. The relationship between precious metal prices and the oil price is positive and generally increasing over time, while the LL estimates for the exchange rate are negative and then positive and highly non-linear.

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