Open AccessHow does indian gold price react to the changes in real exchange rates?
Author(s) -
Daniel Lazar,
Maria Immanuvel S
Publication year - 2012
Publication title -
journal of management and science
Language(s) - English
Resource type - Journals
eISSN - 2250-1819
pISSN - 2249-1260
DOI - 10.26524/jms.2012.42
Subject(s) - economics , cointegration , granger causality , exchange rate , variance decomposition of forecast errors , gold as an investment , monetary economics , currency , gold standard (test) , econometrics , effective exchange rate , mathematics , statistics
This study investigates the relationship between the Indian gold price and the real exchangerates of major international currency and how does Indian gold price reacts to the exchange rates of thesecurrencies. The data set consists of monthly gold prices from Indian market and the real exchange rates ofmajor currencies like USD, Euro, Yen and INR for the period from 1994:01 to 2011:12. The relationship andreaction is tested through the Johansen cointegration test, Granger causality test and VAR models like Impulseresponse function and Variance Decomposition. It is found that the Indian gold prices have long runrelationship with the real exchange rates of major currencies and it is also found that the Indian gold prices arecaused by the real exchange rate of Yen but the vice versa does not exist. The Indian gold prices reactpositively to the shocks from Yen and negatively to the INR.