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Does Gold Act as a Hedge against Inflation in the UK? Evidence from a Fractional Cointegration Approach Over 1257 to 2016

Author

Listed:
  • Goodness C. Aye

    (Department of Economics, University of Pretoria, South Africa)

  • Hector Carcel

    (University of Navarra, Faculty of Economics and NCID, Edificio Amigos, Pamplona, Spain)

  • Luis A. Gil-Alana

    (University of Navarra, Faculty of Economics and NCID, Edificio Amigos, Pamplona, Spain)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, South Africa)

Abstract

This paper examines the inflation hedging ability of gold in the UK based on a fractional integration and cointegration framework. This gives more flexibility as it does not restrict the order of integration between zero and 1. Annual time series data covering 1257 to 2016 were used. We conducted both full sample and sub-sample analysis. Using the full sample, the findings shows that gold and retail price index (RPI) are both I(1). However, based on the sub-sample analyses, gold is I(1) for most sub-periods while RPI is mean reverting (d

Suggested Citation

  • Goodness C. Aye & Hector Carcel & Luis A. Gil-Alana & Rangan Gupta, 2017. "Does Gold Act as a Hedge against Inflation in the UK? Evidence from a Fractional Cointegration Approach Over 1257 to 2016," Working Papers 201753, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201753
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    More about this item

    Keywords

    Inflation; gold price; hedging; fractional cointegration; long memory;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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