Co-integration analysis with structural breaks: South Africa’s gold mining index and USD/ZAR exchange rate

  • Published October 12, 2016
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  • DOI
    http://dx.doi.org/10.21511/bbs.11(3).2016.11
  • Article Info
    Volume 11 2016, Issue #3, pp. 109-119
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This paper examines the presence of cointegration between South African gold mining index and USD/ZAR exchange rate. The results show that gold index and USD/ZAR exchange rate series are both I(1) and are cointegrated. The Granger causality test shows a two-way directional causality between gold index and USD/ZAR exchange rate for the period 9 June 2005-9 June 2015. By accounting for possible structural breaks, the Zivot-Andrews unit root test suggests two different breaking points in the data. By using the breaking dates to divide the dataset into 3 sub-periods, the results show that gold index and USD/ZAR exchange rate series are not cointegrated. The Granger causality test shows no causality between the two variables. This finding suggests that gold mining index does not play a key role in explaining the trends in the exchange rate and likewise exchange rate does not affect gold mining index.

Keywords: USD/ZAR exchange rate, gold mining index, unit root tests, breaking points, cointegration.
JEL Classification: F3, F4, F63, O47

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