On the Economic Determinants of the Gold-Inflation Relation

22 Pages Posted: 6 Sep 2013 Last revised: 20 Mar 2014

Jonathan A. Batten

Monash University

Cetin Ciner

University of North Carolina at Wilmington

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Ljubljana - Faculty of Economics

Date Written: March 19, 2014

Abstract

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 the consumer price index (CPI) 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-CPI linkage suggests gold’s sensitivity to the CPI is related to interest rate changes: a finding that highlights the monetary nature of gold as a commodity.

Keywords: Gold, Inflation, monetary policy

JEL Classification: Q47, O13, C22

Suggested Citation

Batten, Jonathan A. and Ciner, Cetin and Lucey, Brian M., On the Economic Determinants of the Gold-Inflation Relation (March 19, 2014). Available at SSRN: https://ssrn.com/abstract=2320754 or http://dx.doi.org/10.2139/ssrn.2320754

Jonathan A. Batten

Monash University ( email )

Melbourne
Australia

Cetin Ciner

University of North Carolina at Wilmington ( email )

Wilmington, NC 28403
United States

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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