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Gold and inflation(s) - a time-varying relationship

journal contribution
posted on 01.12.2017, 00:00 authored by B M Lucey, Susan SharmaSusan Sharma, S A Vigne
What is the relationship between the price of gold and inflation? How stable is it - over time and across measures of inflation? We examine this for three countries (the USA, the UK and Japan) over forty years and failure of rejecting the null-unit root hypothesis at with a variety of medicate statistical significance aasures of inflation and monetary liquidity. We apply a formal test for time variation and proceed to extract time varying cointegration relationships. Both formal and graphical evidence points to a break in the relationship(s) of gold and official inflation in the mid 1990s in the USA but to less clear results for the UK and Japan. However, gold seems to have offered a protection against an increase in money supply throughout nearly the entire past 40 year period in the US and the UK but failed to do so in Japan. Supporting previous findings we find evidence for a time-varying relationship in cointegration between gold and both predicted and realized inflation in nearly all cases. Contrasting multiple inflation indicators, we find evidence for the importance of money supply in the gold/inflation relationship.

History

Journal

Economic modelling

Volume

67

Pagination

88 - 101

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

0264-9993

Language

eng

Publication classification

C1 Refereed article in a scholarly journal

Copyright notice

2016, Elsevier