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Does gold act as a hedge against different nuances of inflation? Evidence from Quantile-on-Quantile and causality-in- quantiles approaches

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  • Shahzad, Syed Jawad Hussain
  • Mensi, Walid
  • Hammoudeh, Shawkat
  • Sohail, Asiya
  • Al-Yahyaee, Khamis Hamed

Abstract

This paper re-examines the gold-inflation dependence, with emphasis on the empirical validity of the inflation-hedging property of gold for six major countries (China, India, Japan, France, United Kingdom, and the United States) with large gold markets, using the relatively novel techniques the Quantile-on-Quantile (QQ) and the causality-in- quantiles. The main empirical QQ result shows a positive relationship between gold and inflation for these countries. The inflation-hedging property of gold varies during booms and recessions, and thus the hedging decisions should be made in consideration of the asymmetric nature of the gold-inflation link during different economic conditions. Using the nonparametric causality-in-quantiles method, we find a significant Granger asymmetric causality in the mean and the variance from inflation to gold for China, Japan, France and the UK, except for the extreme (lower and higher) quantiles, indicating that gold may serve as a hedge against inflation only in the mid-quantile ranges or normal economic conditions.

Suggested Citation

  • Shahzad, Syed Jawad Hussain & Mensi, Walid & Hammoudeh, Shawkat & Sohail, Asiya & Al-Yahyaee, Khamis Hamed, 2019. "Does gold act as a hedge against different nuances of inflation? Evidence from Quantile-on-Quantile and causality-in- quantiles approaches," Resources Policy, Elsevier, vol. 62(C), pages 602-615.
    • Handle: RePEc:eee:jrpoli:v:62:y:2019:i:c:p:602-615
    DOI: 10.1016/j.resourpol.2018.11.008
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    More about this item

    Keywords

    Gold; Inflation; Hedging; Quantile-on-Quantile; Causality-in-quantiles;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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