Persistence of precious metal prices : a fractional integration approach with structural breaks
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Date
Authors
Gil-Alana, Luis A.
Chang, Shinhye
Balcilar, Mehmet
Aye, Goodness Chioma
Gupta, Rangan
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
This paper analyses the statistical properties of five major precious metal prices (gold, silver, rhodium, palladium and platinum) based on a fractional integration modelling framework while identifying structural breaks. We use monthly data from 1972:1 to 2013:12. Our results indicate orders of integration that are equal to or greater than 1 (long memory) in all cases except for silver and palladium where we find strong evidence of mean reversion with a parametric and semiparametric method, respectively. Given some inconsistencies between the parametric and semiparametric results, we suspect the possibility of structural breaks and our results show evidence of structural breaks in almost all cases except palladium. However, after accounting for structural breaks, we find evidence of an increase in the degree of persistence across time in the majority of cases. This implies that in general, shocks to these precious metals will be permanent requiring strong policy measures to return the series to their equilibrium levels in the event of negative shocks.
Description
Keywords
Precious metal, Unit root, Long memory, Structural break
Sustainable Development Goals
Citation
Gil-Alana, LA, Chang, S, Balcilar, M, Aye, GC & Gupta, R 2015, 'Persistence of precious metal prices : a fractional integration approach with structural breaks', Resources Policy, vol. 44, pp. 57-64.