What DCC-GARCH model tell us about the effect of the gold price’s volatility on south african exchange rate?

Léleng KEBALO

Abstract


Abstract:The aim of this paper is to study through a model rarely used and little known, the effect of the gold price’s volatility on the south african real exchange rate. More precisely, it is to show that, through the dynamic conditional correlation (DCC) GARCH model; we get results that are consistent with economic works (Frankel, 2007) on the relationship between gold price’s volatility and the real exchange rate. The period retained in this research paper going from May 1995 to April 2014 and the frequency of the data is monthly. After analysis, we find that in the short term, the real exchange rate is more sensitive to its own volatility, compared to the effect of the volatility of gold price. This last effect, although high, is less persistent on the real exchange rate.

Keywords: Volatility, Exchange rate, Gold price, DCC-GARCH.

JEL. C50, F30, F40.


Keywords


Volatility; Exchange rate; Gold price; DCC-GARCH

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References


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DOI: http://dx.doi.org/10.1453/jel.v3i4.1018

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