1. Home
  2. Volume 6 • Number 1
  3. Impacts of inflation on gold price and exchange rate in Vietnam: time-varying vs fixed coefficient cointegrations
New submission
Issues
Journal Information
Aims and ScopeEditorial BoardEditorial Advisory BoardJournal Policies
Resources
For Readers
For Authors
For Editors
For Reviewers
Publication EthicsCall for Special Issue
ISSN
ISSN 2615-9821
ISSN(Previous) 2588-1396

Volume 6 • Number 1 | March 2022

Impacts of inflation on gold price and exchange rate in Vietnam: time-varying vs fixed coefficient cointegrations

Pham Dinh Long, Bui Quang Hien, and Pham Thi Bich Ngoc

20/04/2022 151 0 0
Like Buy now 20.000 đ
Time-varying cointegration Fixed coefficient cointegration Inflation Gold price Exchange rate

Abstract:

Purpose – The paper aims to shed light on the effects of inflation on gold price and exchange rate in Vietnam by using time-varying cointegration.

Design/methodology/approach – Using cointegration techniques with fixed coefficient and time-varying coefficient, the study exams the impacts of inflation in models and compares the results through coefficient estimates.

Findings – A significant inflation impacts are found with the time-varying cointegration but not with the fixed coefficient cointegration models. Moreover, monetary policy affects exchange rate not only directly via its instruments as money supply and interest rate but indirectly via inflation. Also, interest rate is one of the determinants of gold price.

Originality/value – To the best of our knowledge, this paper is the first to use time-varying cointegration to analyze the impact of inflation on the gold price and exchange rate in Vietnam. Gold price and exchange rate fluctuations are always the essential and striking issues, which have been emphasized by economists and policymakers. In macroeconometric researches, cointegration models are often used to analyze the long-term relations between variables. Attentionally, applied models show a limitation when estimating coefficients are fixed. This characteristic might not really match with the data properties and the variation of the economy. Currently, time-varying cointegration models are emerging method to solve the above issue.

References:

  1. Andrieș, A.M., Căpraru, B., Ihnatov, I. and Tiwari, A.K. (2017), “The relationship between exchange rates and interest rates in a small open emerging economy: the case of Romania”, Economic Modelling, Vol. 67 No. 1, pp. 261-274.
  2. Arfaoui, M. and Ben Rejeb, A. (2017), “Oil, gold, US dollar and stock market interdependencies: a global analytical insight”, European Journal of Management and Business Economics, Vol. 26 No. 3, pp. 278-293.
  3. Batten, J.A., Ciner, C. and Lucey, B.M. (2014), “On the economic determinants of the gold-inflation relation”, Resources Policy, Vol. 41 No. 1, pp. 101-108.
  4. Beckmann, J., Belke, A. and Kühl, M. (2011), “The dollar-euro exchange rate and macroeconomic fundamentals: a time-varying coefficient approach”, Review of World Economics, Vol. 147 No. 1, pp. 11-40.
  5. Bierens, H.J. and Martins, L.F. (2010), “Time-varying cointegration”, Econometric Theory, Vol. 26 No. 5, pp. 1453-1490.
  6. Chang, Y., Kim, C.S., Miller, J.I., Park, J.Y. and Park, S. (2015), “Time-varying long-run income and output elasticities of electricity demand with an application to Korea”, Energy Economics, Vol. 46 No. 1, pp. 334-347.
  7. Darvas, Z. (2012), “Real effective exchange rates for 178 countries: a new database”, Working Paper 2012/06, Bruegel, Brussels, 15 March 2012.
  8. Granger, C.W. and Lee, H.S. (1991), “An introduction to time-varying parameter cointegration”, in Economic Structural Change, Springer, Berlin and Heidelberg, pp. 139-157.
  9. Koop, G. and Korobilis, D. (2013), “Large time-varying parameter VARs”, Journal of Econometrics, Vol. 177 No. 1, pp. 185-198.
  10. Koop, G., Leon-Gonzalez, R. and Strachan, R.W. (2011), “Bayesian inference in a time varying cointegration model”, Journal of Econometrics, Vol. 165 No. 2, pp. 210-220.
  11. Kumar, S., Srinivasan, N. and Ramachandran, M. (2012), “A time-varying parameter model of inflation in India”, Indian Growth and Development Review, Vol. 5 No. 1, pp. 25-50.
  12. Lucey, B.M., Sharma, S.S. and Vigne, S.A. (2016), “Gold and inflation(s) - a time-varying relationship”, Economic Modelling, Vol. 67 No. 1, pp. 88-101.
  13. Mark, N.C. (1995), “Exchange rates and fundamentals: evidence on long-Horizon predictability”, American Economic Review, Vol. 85 No. 1, pp. 201-218.
  14. O'Connor, F.A., Lucey, B.M., Batten, J.A. and Baur, D.G. (2015), “The financial economics of gold - a survey”, International Review of Financial Analysis, Vol. 41 No. 1, pp. 186-205.
  15. Park, J.Y. and Hahn, S.B. (1999), “Cointegrating regressions with time varying coefficients”, Econometric Theory, Vol. 15 No. 5, pp. 664-703.
  16. Park, C. and Park, S. (2013), “Exchange rate predictability and a monetary model with time-varying cointegration coefficients”, Journal of International Money and Finance, Vol. 37 No. 1, pp. 394-410.
  17. Park, S.Y. and Zhao, G. (2010), “An estimation of U.S. gasoline demand: a smooth time-varying cointegration approach”, Energy Economics, Vol. 32 No. 1, pp. 110-120.
  18. Seyyedi, S. (2017), “Analysis of the interactive linkages between gold prices, oil prices, and exchange rate in India”, Global Economic Review, Vol. 46 No. 1, pp. 65-79.
  19. Truong, K.P., Shu, M.H., Hsu, B.M. and Nguyen, T.L. (2017), “Key influence factors of the gold price in Vietnam over 2011-2015”, International Journal of Scientific and Engineering Research, Vol. 8 No. 4, pp. 284-288.
  20. Wang, Q. and Wu, N. (2012), “Long-run covariance and its applications in cointegration regression”, Stata Journal, Vol. 12 No. 3, pp. 515-542.
  21. Zuo, H. and Park, S.Y. (2011), “Money demand in China and time-varying cointegration”, China Economic Review, Vol. 22 No. 3, pp. 330-343.

JEL classification: C32,E41

Related articles