COINTEGRATING RELATION BETWEEN EXCHANGE RATE AND GOLD PRICE

Ranjusha; Devasia; Nandakumar

doi:10.29121/granthaalayah.v5.i10.2017.2303

Authors

Ranjusha. N Research Scholar, Kannur University, India
Dr.Devasia. M. D Associate Professor, Nirmalagiri College, Kannur, India
Nandakumar. V. T Associate Professor, Nirmalagiri College, Kannur, India

DOI:

https://doi.org/10.29121/granthaalayah.v5.i10.2017.2303

Keywords:

Exchange Rate, Gold Price, Unit Root, Cointegration, Error Correction, Granger Causality

Abstract [English]

The very purpose of this paper is to analyse the relationship between gold price and Rupee – Dollar exchange rate in India. The study utilises the annual data of exchange Rate (ER) and Gold Price (GP) from 1970 to 2015 to determine the relationship. Different econometric tools like Unit root test, Johansen co integration test, Vector error correction model, Granger causality test are used for detecting the long run relation, if any between the mentioned variables. The result shows that there exists a long run cointegrating relation between the variables. That is we can stabilise the Gold Price movement by controlling the exchange rate fluctuations. Likewise it also shows that Exchange rate doesn’t Granger cause to Gold price and vice versa. It means that the time series data of one vasriable cannot be used to predict another.

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