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Is Gold Investment A Hedge against Inflation in Pakistan? A Cointegtaion and Causality Analysis in the Presence of Structural Breaks

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  • Shahbaz, Muhammad
  • Tahir, Mohammad Iqbal
  • Ali, Imran

Abstract

Last few years have witnessed overwhelming investments in the gold market both directly and indirectly. These overwhelming investments in the gold market by individual and institutional investors have gained the attention of the research community. Numerous studies have examined how investment in gold can be used to hedge against high inflation. The current study investigates the gold investment as an effective hedge to deal with inflation in case of Pakistan in long run as well as in short run. In doing so, time series data on gold prices, economic growth and inflation is used for the period 1997-2011 utilizing quarterly frequency. The study applies the ARDL bounds testing technique of cointegration for long run, and innovative accounting approach (IAA) to examine the direction of causality in variables. Our findings reveal that investment in gold is the best hedge to address inflation in both long run and short run in case of Pakistan. The implications and applications of the study have been discussed in detail.

Suggested Citation

  • Shahbaz, Muhammad & Tahir, Mohammad Iqbal & Ali, Imran, 2013. "Is Gold Investment A Hedge against Inflation in Pakistan? A Cointegtaion and Causality Analysis in the Presence of Structural Breaks," MPRA Paper 47924, University Library of Munich, Germany, revised 01 Jul 2013.
    • Handle: RePEc:pra:mprapa:47924
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    More about this item

    Keywords

    Gold prices; inflation; hedging; Pakistan;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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