EXPLORING COINTEGRATION BETWEEN GOLD PRICES AND INFLATION: AN EMPIRICAL ANALYSIS OF G-8 ECONOMIES
Keywords:ARDL, Cointegration, Gold, Inflation
The primary objective of this research is to explore whether there exists any meaningful relationship between domestic gold prices and expected rates of inflation, with a particular focus on the potential predictive capability of gold prices for such inflationary trends. The intricate relationship between gold prices and expected inflation is empirically investigated by considering the time-series data from Canada, France, Germany, Japan, Italy, Russia, the UK, and the US for the period 1990-2022. The primary data diagnostic tests revealed that the considered variables are non-stationary at the same level, prompting the application of an autoregressive distributed lag model, which identified a compelling and statistically significant linkage between domestic gold prices and anticipated inflation rates. The findings of the study can be attributed to the distinct ways in which inflation expectations materialize within these economies, potentially leading to a quicker convergence of mean-reverting inflation rates. The study concludes that gold prices can explain the anticipated inflation trends, thereby enhancing our understanding of the intricate interplay between these economic variables.
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