On the Economic Determinants of the Gold-Inflation Relation
Jonathan A. Batten
Monash University - Department of Accounting and Finance
University of North Carolina at Wilmington
Brian M. Lucey
Trinity College, Dublin - School of Business; Trinity College (Dublin) - Institute for International Integration Studies (IIIS); Glasgow Caledonian University - Division of Accounting & Finance; University of Ljubljana - Faculty of Economics
September 4, 2013
We examine the long term dynamic relation between inflation and the price of gold. We begin by showing that there is no cointegration between gold and inflation if the volatile period of the early 1980s is excluded from the data. However, we are also able to demonstrate that there is significant time variation in the relation, such that comovement between the variables has indeed increased in the last decade. Examination of the underlying macroeconomic factors that could generate time variation in the gold-inflation linkage suggests gold’s sensitivity to inflation is related to interest rate changes: a finding that highlights the monetary nature of gold as a commodity.
Number of Pages in PDF File: 21
Keywords: Gold, Inflation
JEL Classification: Q47, O13, C22working papers series
Date posted: September 6, 2013
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