Volatility integration of gold and crude oil prices with the interest rates in India

Abstract

PurposeCrude oil, gold and interest rates are some of the key indicators of the health of domestic as well as global economy. The purpose of the study is to find the shock volatility and price volatility effects of gold and crude oil market on interest rates in India.Design/methodology/approachThis study finds the mutual and directional association of the volatility of gold, crude oil and interest rates in India. The bi-variate GARCH models (Diagonal VEC GARCH and BEKK GARCH) are applied on the sample data of gold price, crude oil price and yield (interest rate) gathered from November 30, 2015 to November 16, 2020 (weekly basis) to investigate the volatility association including the volatility spillover effect in the three markets.FindingsThe main findings of the study focus on having a long-term conditional correlation between gold and interest rates, but there is no evidence of volatility spillover from gold and crude oil on the interest rates. The findings of the study are of great importance especially to the policymakers, as they state that the fluctuations in prices of gold and crude oil do not adversely impact the interest rates in India. Therefore, the fluctuations in prices of gold and crude may generally impact the economy, but it has nothing to do with interest rate in particular. This implies that domestic and foreign investments in the country will not be affected by gold and crude oil that are largely driven by interest rates in the country.Practical implicationsGold and crude oil are two very important commodities that have their importance not only for domestic affairs but also for international business. They veritably influence the economy including forex exchange for any nation. In addition to this, the researchers believe the findings will provide insights to policymakers, stakeholders and investors.Originality/valueGold and crude oil undoubtedly influence the exchange rates but their impact on the interest rates in an economy is not definite and remains ambiguous owing to the mixed findings of the studies. The lack of studies related to the impact of gold and crude oil on the interest rates, despite them being essentials for the health of any economy is the main motivation of this study. This study is novel as it investigates the volatility impact of crude oil and gold on interest rates and contributes to the existing literature with its findings.

Modelling volatility effects between stock, oil, gold and forex markets: Evidence from India

“…If a country's current account struggles due to higher oil prices, currency exchange rates will likely become less favorable. The previous research (Allegret et al, 2015;Rastogi et al, 2021) provides more recent evidence regarding this effect. According to the findings of Sadorsky (2000), currency exchange rates affect the price of oil.…”

Effects of Interdependence and Contagion on Crude Oil and Precious Metals According to ρDCCA: A COVID-19 Case Study

“…More recently, Rastogi et al [13] studied the contagion effect among Gold, crude oil and interest rates to investigate the volatility integration of Gold and crude oil prices with the interest rates in India, in the period from 30 November 2015 to 16 November 2020. The authors show the existence of long-term conditional correlations between Gold and interest rates, but there is no evidence of the spillover volatility of Gold and crude oil on interest rates.…”

“…A global health crisis, such as COVID-19, can have drastic effects on the economy. Recent studies have analyzed the contagion effect caused by the COVID-19 pandemic, as can be seen in [12][13][14][15][16]. Therefore, a statistical analysis will be performed below with respect to the concept of interdependence and contagion effect.…”

Fossil Fuel-Based versus Electric Vehicles: A Volatility Spillover Perspective Regarding the Environment

“…The short-term effect is caused by any shock in one market that can influence another. However, the long-term VSE is driven by price changes in one market affecting another market or variable (Rastogi and Kanoujiya 2022;Rastogi et al 2021). The VSE from copper price to ESG means the price changes in copper result in changes in the ESG index.…”

“…The VSE from copper price to ESG means the price changes in copper result in changes in the ESG index. Similarly, oil price and exchange rate changes influence the ESG index (Rastogi and Kanoujiya 2022;Rastogi et al 2021).…”