Effects on Economic Growth of Prices of Gold and Oil: An Application by MS-VAR

Abstract

Oil and gold are the two strategic commodities which have received much attention. The prices of oil and gold, which are the world’s most traded commodities, are very volatile. This paper aims to analyze the impact of oil shock and gold price on the business cycles of some developed countries: the United States, the United Kingdom, Germany, Canada, Australia and Italy. MS-VAR models have been extended to verify if the inclusion of oil prices, Gold Price as exogenous variables improves the ability of each specification and to identify the different phases of the business cycle for each country. MS-ARX and MS-VAR models were selected for capturing the 2 or 3 regimes for Austria, Canada, Germany, Italy, United Kingdom, France and USA. OP and AP variables were taken as exogenous for univariate MS(.)-ARX(.) models. When the transition probabilities are taken into account, important asymmetries in oil prices were recognized. There are two econometric results; the results for volatility of oil and gold price and the result for countries.The macro-economic policy studies had been made with MSIA(3)-VARX(4) models that AP and OP were taken as exogenous. The results highlighted the importance of energy policy on economic growth, economic development and welfare.