Gold Price Fluctuation Essay

10351 WordsAug 8, 201242 Pages
Working Paper/Document de travail 2007-35 Gold Prices and Inflation by Greg Tkacz Bank of Canada Working Paper 2007-35 June 2007 Gold Prices and Inflation by Greg Tkacz Research Department Bank of Canada Ottawa, Ontario, Canada K1A 0G9 Bank of Canada working papers are theoretical or empirical works-in-progress on subjects in economics and finance. The views expressed in this paper are those of the authors. No responsibility for them should be attributed to the Bank of Canada. ISSN 1701-9397 © 2007 Bank of Canada Acknowledgements Thanks to Ramdane Djoudad, Douglas Hodgson, Nick Rowe, Pierre St-Amant and to seminar participants at the Bank of Canada, Carleton University and the 2007 meetings of the Société canadienne de science économique in Quebec City for several useful comments and suggestions. ii Abstract Using data for 14 countries over the 1994 to 2005 period, we assess the leading indicator properties of gold at horizons ranging from 6 to 24 months. We find that gold contains significant information for future inflation for several countries, especially for those that have adopted formal inflation targets. This finding may arise from the manner in which inflation expectations are formed in these countries, which may result in more rapidly mean-reverting inflation rates. Compared to other inflation indicators for Canada, gold remains statistically significant when combined with variables such as the output gap or the growth rate of a broad monetary aggregate. JEL classification: E31, E44 Bank classification: Inflation and prices; Exchange rates Résumé À l’aide de données portant sur 14 pays et couvrant la période 1994-2005, l’auteur évalue les propriétés du prix de l’or comme indicateur avancé à des horizons allant de 6 à 24 mois. Il constate que le prix observé de l’or contient de

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