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Gold and inflation(s) – A time-varying relationship

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  • Lucey, Brian M.
  • Sharma, Susan Sunila
  • Vigne, Samuel A.

Abstract

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 with a variety of measures 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.

Suggested Citation

  • Lucey, Brian M. & Sharma, Susan Sunila & Vigne, Samuel A., 2017. "Gold and inflation(s) – A time-varying relationship," Economic Modelling, Elsevier, vol. 67(C), pages 88-101.
    • Handle: RePEc:eee:ecmode:v:67:y:2017:i:c:p:88-101
    DOI: 10.1016/j.econmod.2016.10.008
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    More about this item

    Keywords

    Gold; Inflation; Money supply; Cointegration; Time-varying cointegration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F30 - International Economics - - International Finance - - - General
    • G1 - Financial Economics - - General Financial Markets

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