Price of Gold and US Dollar Index Dwarakamayi Polakam Jennifer Griffeth Ashley Arlotti Rui Feng Ying Fan Qi He Qi Li Group C Presentation

Overview 1 US Dollar Index 1.1 Analysis of DOLLARINDEX 1.2 Analysis of DLNDOLLAR 1.3 AR Model 1.4 Forecasting 3 Relationship Between Gold and US Dollar 3.1 The Cross Correlogram 3.2 Analysis of w and resm (Distributed Lag Model) 3.3 Analysis of DLNGOLD and DLNDOLLAR 3.4 Causality Test 3.5 VAR Analysis 2 Price of Gold 2.1 Analysis of GOLD 2.2 Analysis of DLNGOLD 2.3 AR Model 2.4 GARCH Model 2.5 Forecasting

Part 1: US Dollar Index The First Model: DLNDOLLAR

1.1 Analysis of DOLLARINDEX (1) Trace

1.1 Analysis of DOLLARINDEX (2) Histogram

1.1 Analysis of DOLLARINDEX (3) Correlogram

1.1 Analysis of DOLLARINDEX (4) Unit Root Test

1.2 Analysis of DLNDOLLAR (1) Trace

1.2 Analysis of DLNDOLLAR (2) Histogram

1.2 Analysis of DLNDOLLAR (3) Correlogram

1.2 Analysis of DLNDOLLAR (4) Unit Root Test

1.3 AR(1), AR(2) Model (1) Add AR(1) and AR(2)

1.3 AR(1), AR(2) Model (2a) Diagnostic - Actual, fitted and residual

1.3 AR(1), AR(2) Model (2b) Diagnostic - Correlogram of residuals

1.3 AR(1), AR(2) Model (2c) Diagnostic - Histogram of residuals

1.3 AR(1), AR(2) Model (2d) Diagnostic - Serial Correlation test on residuals

1.3 AR(1), AR(2) Model (2e) Diagnostic - Correlogram of residual squared

1.3 AR(1), AR(2) Model (2f) Diagnostic - Heteroskedasticity test

1.4 Forecasting (1) Confidence Interval of Two Standard Error

1.4 Forecasting (2) Forecast for Next Eight Months

Part 2: Price of Gold The Second Model: DLNGOLD

2.1 Analysis of GOLD (1) Trace

2.1 Analysis of GOLD (2) Histogram

2.1 Analysis of GOLD (3) Correlogram

2.1 Analysis of GOLD (4) Unit Root Test

2.2 Analysis of DLNGOLD (1) Trace

2.2 Analysis of DLNGOLD (2) Histogram

2.2 Analysis of DLNGOLD (3) Correlogram

2.2 Analysis of DLNGOLD (4) Unit Root Test

2.3 AR(1), AR(2), AR(7), AR(8), AR(11) and AR(18) Model (1) AIC, SIC, etc for Different Models AICSICHQCDWACPC Serial Correlati on AR(1) AR(2) AR(11) ,8,217,8,14no AR(1) AR(2) AR(7) AR(8) AR(11) AR(18) no AR(1) AR(2) AR(7) AR(8) AR(11) AR(18) AR(19) no AR(1) AR(2) AR(11) MA(7) MA(8) MA(11) ,3535yes AR(1) AR(2) AR(11) MA(7) MA(8) MA(11) MA(29) M,A(35) no

2.3 AR(1), AR(2), AR(7), AR(8), AR(11) and AR(18) Model (2) Add AR(1), AR(2), AR(7), AR(8), AR(11) and AR(18)

2.3 AR(1), AR(2), AR(7), AR(8), AR(11) and AR(18) Model (3a) Diagnostic - Actual, fitted and residual

2.3 AR(1), AR(2), AR(7), AR(8), AR(11) and AR(18) Model (3b) Diagnostic - Correlogram of residuals

2.3 AR(1), AR(2), AR(7), AR(8), AR(11) and AR(18) Model (3c) Diagnostic - Histogram of residuals

2.3 AR(1), AR(2), AR(7), AR(8), AR(11) and AR(18) Model (3d) Diagnostic - Serial Correlation test on residuals

2.3 AR(1), AR(2), AR(7), AR(8), AR(11) and AR(18) Model (3e) Diagnostic - Correlogram of residual squared

2.3 AR(1), AR(2), AR(7), AR(8), AR(11) and AR(18) Model (3f) Diagnostic - Heteroskedasticity test

2.4 GARCH Model (1) Add GARCH

2.4 GARCH Model (2a) Diagnostic - Correlogram of residuals

2.4 GARCH Model (2b) Diagnostic - Histogram of residuals

2.4 GARCH Model (2c) Diagnostic - Correlogram of residual squared

2.4 GARCH Model (2d) Diagnostic - Heteroskedasticity test

2.5 Forecasting (1) Confidence Interval of Two Standard Error

2.5 Forecasting (2) Forecast for Next Eight Months

Part 3: Relationship Between Gold and US Dollar

3.1 The Cross Section Correlogram

3.2 Analysis of w and resm (1) Theoretical Analysis LNGOLD(t) = h 0 LNDOLLAR(t) + h 1 LNDOLLAR(t-1) + h 2 LNDOLLAR(t-2) +…+ e(t) = (h 0 + h 1 Z + h 2 Z 2 +…) LNDOLLAR(t) + e(t) = h(z)LNDOLLAR(t) + e(t) First Difference: DLNGOLD(t) = h(z) DLNDOLLAR(t) + e(t) Fit AR(2) model to DLNDOLLAR, B(z)*DLNDOLLAR = WN(t), B(z)* DLNGOLD(t) = h(z)* B(z)*DLNDOLLAR(t) + B(z)* e(t) W(t) = h(z) * resm + error(t)

3.2 Analysis of w and resm (2a) Analysis of w and resm

3.2 Analysis of w and resm (2b) Analysis of w and resm with AR terms

3.2 Analysis of w and resm (3a) Diagnostic - Actual, fitted and residual

3.2 Analysis of w and resm (3b) Diagnostic - Correlogram of residuals

3.2 Analysis of w and resm (3c) Diagnostic - Serial Correlation test on residuals

3.2 Analysis of w and resm (3d) Diagnostic - Heteroskedasticity test

3.3 Analysis of DLNGOLD and DLNDOLLAR (1) Analysis of DLNGOLD and DLNDOLLAR

3.3 Analysis of DLNGOLD and DLNDOLLAR (2a) Diagnostic - Actual, fitted and residual

3.3 Analysis of DLNGOLD and DLNDOLLAR (2b) Diagnostic - Correlogram of residuals

3.3 Analysis of DLNGOLD and DLNDOLLAR (2c) Diagnostic - Serial Correlation test on residuals

3.3 Analysis of DLNGOLD and DLNDOLLAR (2d) Diagnostic - Heteroskedasticity test

3.4 Causality Test Pairwise Granger Causality Tests Date: 05/31/11 Time: 08:00 Sample: 1973: :12 Lags: 25 Null Hypothesis:ObsF-StatisticProbability DLNDOLLARINDEX does not Granger Cause DLNGOLD DLNGOLD does not Granger Cause DLNDOLLARINDEX

3.5 VAR Analysis (1a) VAR Analysis DLNGOLDDLNDOLLARINDEX DLNGOLD(-1) ( ) ( ) ( ) ( ) DLNGOLD(-2) ( ) ( ) ( ) ( ) DLNGOLD(-7) ( ) ( ) ( ) ( ) DLNGOLD(-11) ( ) ( ) ( )( ) DLNGOLD(-18) ( ) ( ) ( ) ( ) DLNGOLD(-19) ( ) ( ) ( ) ( ) DLNDOLLARINDEX(-1) ( ) ( ) ( ) ( ) DLNDOLLARINDEX(-18) ( ) ( ) ( ) ( )

3.5 VAR Analysis (1a) Impulse Analysis

3.5 VAR Analysis (1b) VAR Analysis

Conclusion

Thank you!