Is Gold Investment A Hedge against Inflation in Pakistan? A Cointegtaion and Causality Analysis in the Presence of Structural Breaks
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.
|Date of creation:||01 Jul 2013|
|Date of revision:||01 Jul 2013|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Greg Tkacz, 2007. "Gold Prices and Inflation," Working Papers 07-35, Bank of Canada.
- Serena Ng & Pierre Perron, 2001.
"LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Econometric Society, vol. 69(6), pages 1519-1554, November.
- Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
- Mahdavi, Saeid & Zhou, Su, 1997. "Gold and commodity prices as leading indicators of inflation: Tests of long-run relationship and predictive performance," Journal of Economics and Business, Elsevier, vol. 49(5), pages 475-489.
- Morley, Bruce, 2006. "Causality between economic growth and immigration: An ARDL bounds testing approach," Economics Letters, Elsevier, vol. 90(1), pages 72-76, January.
- Joscha Beckmann & Robert Czudaj, 2012.
"Gold as an Infl ation Hedge in a Time-Varying Coeffi cient Framework,"
Ruhr Economic Papers
0362, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- Beckmann, Joscha & Czudaj, Robert, 2013. "Gold as an inflation hedge in a time-varying coefficient framework," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 208-222.
- Muhammad Shahbaz, 2010. "Income inequality-economic growth and non-linearity: a case of Pakistan," International Journal of Social Economics, Emerald Group Publishing, vol. 37(8), pages 613-636, July.
- Helmut Lütkepohl, 2006.
"Structural vector autoregressive analysis for cointegrated variables,"
AStA Advances in Statistical Analysis,
Springer, vol. 90(1), pages 75-88, March.
- Helmut Luetkepohl, 2005. "Structural Vector Autoregressive Analysis for Cointegrated Variables," Economics Working Papers ECO2005/02, European University Institute.
- Bahram Adrangi & Arjun Chatrath & Rohan Christie David, 2000. "Price discovery in strategically-linked markets: the case of the gold-silver spread," Applied Financial Economics, Taylor & Francis Journals, vol. 10(3), pages 227-234.
- Brian M. Lucey & Edel Tully, 2006. "The evolving relationship between gold and silver 1978--2002: evidence from a dynamic cointegration analysis: a note," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(1), pages 47-53, January.
- Brian M Lucey, Valerio Poti, Edel Tully, 2006.
"International Portfolio Formation, Skewness & the Role of Gold,"
Frontiers in Finance and Economics,
SKEMA Business School, vol. 3(1), pages 49-68, June.
- Brian M Lucey & Edel Tully & Valerio Poti, 2005. "International Portfolio Formation, Skewness & the Role of Gold," The Institute for International Integration Studies Discussion Paper Series iiisdp030, IIIS.
- Solt, Michael E & Swanson, Paul J, 1981. "On the Efficiency of the Markets for Gold and Silver," The Journal of Business, University of Chicago Press, vol. 54(3), pages 453-78, July.
- Jordan Shan, 2005. "Does financial development 'lead' economic growth? A vector auto-regression appraisal," Applied Economics, Taylor & Francis Journals, vol. 37(12), pages 1353-1367.
- Capie, Forrest & Mills, Terence C. & Wood, Geoffrey, 2005. "Gold as a hedge against the dollar," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(4), pages 343-352, October.
- Brian Lucey & Edel Tully, 2005.
"Seasonality, Risk And Return In Daily COMEX Gold And Silver Data 1982-2002,"
The Institute for International Integration Studies Discussion Paper Series
- Brian Lucey & Edel Tully, 2006. "Seasonality, risk and return in daily COMEX gold and silver data 1982-2002," Applied Financial Economics, Taylor & Francis Journals, vol. 16(4), pages 319-333.
- Dirk G. Baur & Brian M. Lucey, 2010.
"Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold,"
The Financial Review,
Eastern Finance Association, vol. 45(2), pages 217-229, 05.
- Dirk G. Baur & Brian M. Lucey, 2007. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Institute for International Integration Studies Discussion Paper Series iiisdp198, IIIS.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992.
"Efficient Tests for an Autoregressive Unit Root,"
NBER Technical Working Papers
0130, National Bureau of Economic Research, Inc.
- Wang, Kuan-Min & Lee, Yuan-Ming & Thi, Thanh-Binh Nguyen, 2011. "Time and place where gold acts as an inflation hedge: An application of long-run and short-run threshold model," Economic Modelling, Elsevier, vol. 28(3), pages 806-819, May.
- Blose, Laurence E., 2010. "Gold prices, cost of carry, and expected inflation," Journal of Economics and Business, Elsevier, vol. 62(1), pages 35-47, January.
- DeJong, David N, et al, 1992. "Integration versus Trend Stationarity in Time Series," Econometrica, Econometric Society, vol. 60(2), pages 423-33, March.
- Graham Smith, 2002. "Tests of the random walk hypothesis for London gold prices," Applied Economics Letters, Taylor & Francis Journals, vol. 9(10), pages 671-674.
- A. Sen, 2003. "Limiting behaviour of Dickey-Fuller t-tests under the crash model alternative," Econometrics Journal, Royal Economic Society, vol. 6(2), pages 421-429, December.
- Andrew C. Worthington & Mosayeb Pahlavani, 2007. "Gold investment as an inflationary hedge: cointegration evidence with allowance for endogenous structural breaks," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(4), pages 259-262.
- Ciner, Cetin & Gurdgiev, Constantin & Lucey, Brian M., 2013. "Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 202-211.
- Zivot, Eric & Andrews, Donald W K, 2002.
"Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(1), pages 25-44, January.
- Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
- Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
- Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:47924. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.