Gold and Inflation(s) – A Time-Varying Relationship

23 Pages Posted: 19 Nov 2015

See all articles by Samuel Vigne

Samuel Vigne

Trinity College (Dublin) - Trinity Business School

Brian M. Lucey

Trinity Business School, Trinity College Dublin; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Date Written: November 19, 2015

Abstract

What is the relationship between gold prices and inflation? The answer does not only depend on the studied time window, but also on the definition of inflation. We work with forty years of data and apply a Johansen test of cointegration to the price of gold and inflation indices in the United States of America, the United Kingdom and Japan. We also study the relationship between gold and liquid money supply in order to look at inflation from a more classical point of view. We further use a formal test for time variation and proceed to extract time varying cointegration relationships. Evidence points to a break in the relationship(s) of gold and official inflation in the mid 1990’s in the USA and to less clear results for the UK and Japan. However, gold seems to have offered a protection against an increased 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 by Batten, Ciner, and Lucey (2014), we find evidence for a time-varying relationship in cointegration between gold and inflation in nearly all series under study and support our findings with a battery of robustness tests looking at predicted inflation and inflation surprise.

Keywords: Gold, Inflation, Money Supply, Cointegration, Time-Varying Cointegration

JEL Classification: C22, E31, G1

Suggested Citation

Vigne, Samuel and Lucey, Brian M., Gold and Inflation(s) – A Time-Varying Relationship (November 19, 2015). Available at SSRN: https://ssrn.com/abstract=2693030 or http://dx.doi.org/10.2139/ssrn.2693030

Samuel Vigne

Trinity College (Dublin) - Trinity Business School ( email )

Aras an Phiarsaigh
College Green
Dublin, Leinster D2
Ireland

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)

Ho Chi Minh City University of Economics and Finance ( email )

59C Nguyen Dình Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

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