Analysis of cointegration and causality relations between gold prices and selected financial indicators: Empirical evidence from Turkey

Abstract

This paper explores the dynamic relationships between gold prices and selected financial indicators (such as prices, inflation rate, deposit interest rate, exchange rate, and the Istanbul Stock Exchange National 100 index) in Turkey between the 2000-2019 period using the Fourier Toda-Yamamoto causality tests. Firstly, the ADF unit root test is applied to examine the stationary of the variables. Then Gregory-Hansen and Arai-Kurozumi cointegration tests, the Dynamic Least Squares (DOLS) approach, are employed to determine the coefficient size and direction of the variables. The findings reveal that the relationship between the inflation rate and the BIST100 index is positive and significant, while the relationship between interest rates is negative and significant. Also, the relationship between exchange rates is negative and insignificant in the study. Additionally, the impacts of the global economic crisis of 2008, which is used as a dummy variable in the study, on gold prices in Turkey are found to be positive and significant. This study indicates that gold is the safe haven for investors from 2000 to 2019 in Turkey. The findings of this paper might contribute both to investors in Turkey and future research on the determination of gold prices.