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Is gold investment a hedge against inflation in Pakistan? A co-integration and causality analysis in the presence of structural breaks

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  • Shahbaz, Muhammad
  • Tahir, Mohammad Iqbal
  • Ali, Imran
  • Rehman, Ijaz Ur

Abstract

The last few years have witnessed overwhelming investments in the gold market. Numerous studies have discussed how investment in gold is a hedge against inflation. The current study investigates whether a gold investment is a hedge against inflation in case of Pakistan. In doing so, we have used time series data on gold prices; economic growth and inflation are used for the period of 1997Q1–2011Q4. The study has applied the ARDL bounds testing approach to co-integration for the long run, and innovative accounting approach (IAA) to examine the direction of causality in variables. Our findings reveal that “investment in gold is a good hedge against inflation” not only in the long-run but also in the short-run. The implications and applications of the study are discussed in detail.

Suggested Citation

  • Shahbaz, Muhammad & Tahir, Mohammad Iqbal & Ali, Imran & Rehman, Ijaz Ur, 2014. "Is gold investment a hedge against inflation in Pakistan? A co-integration and causality analysis in the presence of structural breaks," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 190-205.
    • Handle: RePEc:eee:ecofin:v:28:y:2014:i:c:p:190-205
    DOI: 10.1016/j.najef.2014.03.012
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    More about this item

    Keywords

    Gold prices; Inflation; Hedging; Pakistan;
    All these keywords.

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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