Abstract
We examine the causal relationship between crude oil and gold spot prices before and after the recent financial crisis. In the pre-crisis period, causality is linear and unidirectional, running from oil to gold. In the post-crisis period, a bidirectional nonlinear causality relationship emerges. Volatility spillover transpires as the source of nonlinearity during this period. The time path of the causal linkages both for the returns and the levels (cointegration) was assessed via dynamic bootstrap causality analysis. We find that the causal linkage from gold to oil is time dependent and that the non-Granger causality null hypothesis rejection rate increased considerably in the post-financial crisis period. The probability of gold Granger causing oil in the short-run increases by more than 30% during the recent financial and euro crisis.
Acknowledgments
We would like to thank the Associate Editor and an anonymous referee for their valuable comments and suggestions. The usual disclaimer applies.
Appendix
Unit root and stationarity tests.
| Variables | ADF | PP | KPSS | ||||||
|---|---|---|---|---|---|---|---|---|---|
| PI | PII | PIII | PI | PII | PIII | PI | PII | PIII | |
| t-stat. | t-stat. | t-stat. | |||||||
| Level | |||||||||
| Oil | |||||||||
| c | −0.93 | −1.76 | −1.83 | −1.02 | −1.86 | −1.93 | 4.04a | 0.57b | 3.97a |
| c, t | −2.77 | −1.78 | −2.25 | −2.86 | −1.91 | −2.49 | 0.6a | 0.35a | 0.53a |
| Gold | |||||||||
| c | −0.63 | −1.56 | −0.37 | −0.66 | −1.55 | −0.67 | 4.21a | 4.49a | 6.23a |
| c, t | −2.99 | −2.99 | −3.89b | −2.75 | −2.96 | −3.96a | 0.5a | 0.29a | 0.18b |
| 1st differences | |||||||||
| Oil | |||||||||
| c | −38.11a | −15.82a | −20.09a | −38.05a | −37.95a | −53.38a | 0.03 | 0.07 | 0.06 |
| c, t | −38.09a | −15.81a | −20.1a | −38.04a | −37.93a | −53.38a | 0.03 | 0.07 | 0.03 |
| Gold | |||||||||
| c | −10.98a | −37.64a | −11.79a | −33.61a | −37.69a | −50.7a | 0.04 | 0.08 | 0.03 |
| c, t | −10.98a | −37.64a | −11.79a | −33.6a | −37.70a | −50.69a | 0.03 | 0.03 | 0.02 |
The unit root and stationarity tests are applied with (c, t) and without (c) a time trend. Null hypothesis for the KPSS test is stationarity. The critical values for ADF and Philllips-Perron (PP) statistics are taken from MacKinnon (1996). Superscripts c, b, and a represent significance at 10%, 5%, and 1% level, respectively. Lag lengths are determined via AIC. PP was conducted using Bartlett kernel (Newey-West automatic). PI: 01/2003-07/2007, PII: 08/2007-12/2012, PIII:01/2003-12/2012.
Lee and Strazicich (2004) unit root test with one break.
| PI | PII | PIII | ||||
|---|---|---|---|---|---|---|
| t-stat | TB | t-stat | TB | t-stat | TB | |
| Oil | ||||||
| Model A | −2.89 [5] | 5/21/04 | −2.01 [12] | 1/6/09 | −2.5 [7] | 1/6/09 |
| Model C | −3.75 [1] | 8/30/05 | −2.64 [12] | 11/12/08 | −2.85 [7] | 3/31/05 |
| Gold | ||||||
| Model A | −2.95 [9] | 2/16/06 | −3.17 [11] | 9/10/08 | −3.05 [11] | 3/18/09 |
| Model C | −4.24 [9]c | 12/27/05 | −3.29 [11] | 9/10/08 | −4.43 [11]c | 11/14/05 |
The tests critical values are obtained from Lee and Strazicich (2004, table 1). TB denotes the endogenously determined break points. Numbers in brackets denote the optimal number of lagged first-differenced terms included to correct for serial correlation. PI: 01/2003-07/2007, PII: 08/2007-12/2012, PIII:01/2003-12/2012.
Lee and Strazicich (2003) unit root test with two breaks.
| PI | PII | PIII | |||||||
|---|---|---|---|---|---|---|---|---|---|
| t-stat | 1st TB | 2nd TB | t-stat | 1st TB | 2nd TB | t-stat | 1st TB | 2nd TB | |
| Oil | |||||||||
| Model A | −3.12 [5] | 5/21/04 | 3/25/05 | −2.08 [12] | 1/6/09 | 5/25/10 | −2.6 [7] | 3/23/05 | 9/26/08 |
| Model C | −4.91 [1] | 12/4/03 | 9/7/06 | −4.00 [12] | 10/2/08 | 6/2/09 | −3.87 [7] | 9/26/08 | 10/19/09 |
| Gold | |||||||||
| Model A | −3.09 [9] | 1/2/06 | 7/26/06 | −3.38 [11] | 9/10/08 | 4/3/12 | −3.21 [9] | 5/29/06 | 8/23/11 |
| Model C | −5.23 [9] | 11/4/05 | 6/8/06 | −5.57 [9]c | 7/30/08 | 8/23/11 | −4.78 [9] | 7/30/08 | 8/23/09 |
The tests critical values are obtained from Lee and Strazicich (2004, table 2). TB denotes the endogenously determined break points. Numbers in brackets denote the optimal number of lagged first-differenced terms, superscript c represents significance at the 10% level. PI: 01/2003-07/2001, PII: 08/2007-12/2012, PIII:01/2003-12/2012.
Johansen trace test.
| r | Model 2 | Model 3 | Model 4 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| PI | PII | PIII | PI | PII | PIII | PI | PII | PIII | |
| 0 | 9.04 | 10.6 | 13.40 | 5.2 | 7.14 | 6.51 | 17.19 | 23.05 | 23.60 |
| (0.73) | (0.58) | (0.33) | (0.78) | (0.56) | (0.63) | (0.4) | (0.1) | (0.09) | |
| 1 | 4.02 | 3.52 | 4.91 | 0.27 | 2.5 | 0.27 | 4.81 | 4.35 | 5.85 |
| (0.4) | (0.48) | (0.29) | (0.6) | (0.11) | (0.59) | (0.62) | (0.69) | (0.47) | |
Figures in the parenthesis are p-values. The AIC was used to determine the optimal lag length. Model 2 includes intercept in the cointegration relation, Model 3 includes deterministic trends in level and Model 4 allows for trend in the cointegrating space. PI: 01/2003-07/2007, PII: 08/2007-12/2012, PIII:01/2003-12/2012.
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