Gold as an Infl ation Hedge in a Time-Varying Coefficient Framework

Arbeitspapier

This study analyzes the question whether gold provides the ability of hedging against inflation from a new perspective. Using data for four major economies, namely the USA, the UK, the Euro Area, and Japan, we allow for nonlinearity and discriminate between long-run and time-varying short-run dynamics. Thus, we conduct a Markov-switching vector error correction model (MS-VECM) approach for a sample period ranging from January 1970 to December 2011. Our main findings are threefold: First, we show that gold is partially able to hedge future inflation in the long-run and this ability is stronger for the USA and the UK compared to Japan and the Euro Area. In addition, the adjustment of the general price level is characterized by regime-dependence, implying that the usefulness of gold as an inflation hedge for investors crucially depends on the time horizon. Finally, one regime approximately accounts for times of turbulences while the other roughly corresponds to 'normal times'.

Object Details

• ISBN: 978-3-86788-416-7
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Ruhr Economic Papers ; No. 362

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Price Level; Inflation; Deflation ; Financial Markets and the Macroeconomy
• Subject: Cointegration ; gold price ; inflation hedge ; Markov-switching error correction

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Beckmann, Joscha ; Czudaj, Robert
• Event: Veröffentlichung
• (who): Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI)
• (where): Essen
• (when): 2012

Further information

• DOI: doi:10.4419/86788416
• Handle: http://hdl.handle.net/10419/61447
• Last update: 10.03.2025, 11:42 AM CET