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Is gold investment a hedge against inflation in Pakistan? A co-integration and causality analysis in the presence of structural breaks

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  • Shahbaz, Muhammad
  • Tahir, Mohammad Iqbal
  • Ali, Imran
  • Rehman, Ijaz Ur

Abstract

The last few years have witnessed overwhelming investments in the gold market. Numerous studies have discussed how investment in gold is a hedge against inflation. The current study investigates whether a gold investment is a hedge against inflation in case of Pakistan. In doing so, we have used time series data on gold prices; economic growth and inflation are used for the period of 1997Q1–2011Q4. The study has applied the ARDL bounds testing approach to co-integration for the long run, and innovative accounting approach (IAA) to examine the direction of causality in variables. Our findings reveal that “investment in gold is a good hedge against inflation” not only in the long-run but also in the short-run. The implications and applications of the study are discussed in detail.

Suggested Citation

  • Shahbaz, Muhammad & Tahir, Mohammad Iqbal & Ali, Imran & Rehman, Ijaz Ur, 2014. "Is gold investment a hedge against inflation in Pakistan? A co-integration and causality analysis in the presence of structural breaks," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 190-205.
  • Handle: RePEc:eee:ecofin:v:28:y:2014:i:c:p:190-205
    DOI: 10.1016/j.najef.2014.03.012
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hoang, Thi Hong Van & Lahiani, Amine & Heller, David, 2016. "Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach," Economic Modelling, Elsevier, vol. 54(C), pages 54-66.
    2. Pierdzioch, Christian & Risse, Marian & Rohloff, Sebastian, 2016. "A quantile-boosting approach to forecasting gold returns," The North American Journal of Economics and Finance, Elsevier, vol. 35(C), pages 38-55.
    3. Lian, Yu-Min & Liao, Szu-Lang & Chen, Jun-Home, 2015. "State-dependent jump risks for American gold futures option pricing," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 115-133.
    4. Raza, Naveed & Jawad Hussain Shahzad, Syed & Tiwari, Aviral Kumar & Shahbaz, Muhammad, 2016. "Asymmetric impact of gold, oil prices and their volatilities on stock prices of emerging markets," Resources Policy, Elsevier, vol. 49(C), pages 290-301.
    5. Hanan Naser, 2017. "Can Gold Investments Provide a Good Hedge Against Inflation? An Empirical Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 470-475.
    6. Ijaz Ur Rehman & Nurul Shahnaz Mahdzan & Rozaimah Zainudin, 2016. "Is the relationship between macroeconomy and stock market liquidity mutually reinforcing? Evidence from an emerging market," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 9(3), pages 294-316.
    7. Kumar, Satish, 2017. "On the nonlinear relation between crude oil and gold," Resources Policy, Elsevier, vol. 51(C), pages 219-224.

    More about this item

    Keywords

    Gold prices; Inflation; Hedging; Pakistan;

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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