Exchange Rates, Country Preferences, and Gold


Peter Isard ; Mark P. Taylor ; Michael P. Dooley

Publication Date:

July 1, 1992

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate


This paper provides indirect tests of the hypothesis that exchange rate movements may be largely coterminus with changes in preferences for holding claims on different countries. It is argued that changes in country preferences will be reflected systematically in the price of gold and, hence, that gold price movements, under the maintained hypothesis, should have explanatory power with respect to exchange rate movements over and above the effects of monetary shocks. The paper applies multivariate vector autoregression and cointegration modeling techniques to test for the short-and long-run influence of gold prices on exchange rates conditional on other monetary and real macroeconomic variables, and applies the resulting error correction exchange rate equation to out-of-sample forecasting exercises.


Working Paper No. 1992/051



Publication Date:

July 1, 1992



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