Amine Lahiani

Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach

Abstract This paper aims to study the role of gold as a hedge against inflation based on local monthly gold prices in China, India, Japan, France, the United Kingdom and the United States of America in periods ranging from 1955 to 2015. We extend the literature by using a novel approach with the nonlinear autoregressive distributed lags (NARDL) model (Shin et al., 2014). The main advantage of this model relies on its ability to simultaneously capture the short- and long-run asymmetries through positive and negative partial sum decompositions of changes in the independent variable(s). Moreover, we rely on local gold prices instead of those from London converted into local currencies like in most of previous studies. The results show that gold is not a hedge against inflation in the long run in all cases. In the short run, gold is an inflation hedge only in the UK, USA, and India. Furthermore, there is no long-run equilibrium between gold prices and the CPI in China, India and France. This difference may be due to traditional aspects of gold and custom controls for gold trade in these countries. Our robustness check suggests that the data time-frequency does not change the specification of the NARDL model but can change conclusions regarding the role of gold as a hedge against inflation in certain countries.

Testing for Threshold Effect in ARFIMA Models: Application to US Unemployment Rate Data

Macroeconomic time series often involve a threshold effect in their ARMA representation, and exhibit long memory features. In this paper we introduce a new class of threshold ARFIMA models to account for this. The threshold effect is introduced in the autoregressive and/or the fractional integration parameters, and can be tested for using LM tests. Monte Carlo experiments show the desirable finite sample size and power of the test with an exact maximum likelihood estimator of the long memory parameter. Simulations also show that a model selection strategy is available to discriminate between the competing threshold ARFIMA models. The methodology is applied to US unemployment rate data where we find a significant threshold effect in the ARFIMA representation and a better forecasting performance relative to TAR and symmetric ARFIMA models.

Volatility spillovers and macroeconomic announcements: evidence from crude oil markets

The paper applies an event study methodologyaims to investigate the macroeconomic announcements effects on Standard&Poor’s500 and oil prices. Our results provide evidence for a significant impact of the US macroeconomic news on oil prices. This impact is split into two components, namely the direct effect (common response) and indirect effect (volatility transmission). Altogether our results show that the volatility transmission is bidirectional. Not only a significant volatility transmission from the oil market to the US stock market is revealed, but also a high volatility transmission is recorded from the oil market to the stock market especially after the release of consumption indicators.

Cross-market dynamics and optimal portfolio strategies in Latin American equity markets

Purpose – This paper aims to investigate the return links and volatility transmission between five major equity markets of the Latin American region and the USA over the period 1993-2012. Design/methodology/approach – The authors employ a multivariate vector autoregressive moving average – generalized autoregressive conditional heteroskedasticity (VAR-GARCH) methodology which allows for cross-market transmissions in both return and volatility. Moreover, we show how the obtained results can be used to design internationally diversified portfolios involving the Latin American assets and to analyze the effectiveness of hedging strategies. Findings – The results point to the existence of substantial cross-market return and volatility spillovers and are thus crucial for international portfolio management in the Latin American region. However, the intensity of shock and volatility cross effects varies across the studied markets. Research limitations/implications – The optimal weights and hedging ratios that we ...

Estimation and evaluation of core inflation measures

This article estimates and evaluates different measures of core inflation for India by employing statistical and econometric approaches. We estimate Wholesale Price Index (WPI) ex-food, WPI ex-food and energy, 20% asymmetric trimmed mean, 63rd percentile and Structural Vector Autoregression (SVAR) measures of core inflation. The trimmed mean, 63rd percentile and SVAR measures are unbiased, less volatile and highly correlated to headline inflation. The predictive accuracy of the different core inflation measures used in this article is assessed. The overall result suggests that a 20% asymmetric trimmed mean and SVAR measures of core inflation can be useful for the policy purposes.

Exploring the inflationary effect of oil price in the US: A quantile regression approach over 1876-2014

Purpose The purpose of this paper is to explore the effect of oil price shocks on the US Consumer Price Index over the monthly period from 1876:01 to 2014:04. Design/methodology/approach The author uses the Bai and Perron (2003) structural break test to split the data sample into sub-periods delimited by the computed break dates. Afterwards, the author uses the quantile treatment effects over the full sample and then, by including sub-periods dummies to accommodate the selected structural breaks that drive the relationship between inflation and oil price growth. Findings The findings include a decreased transmission effect of oil price changes on inflation in recent years; a varied elasticity of inflation to the growth rate of oil prices across the distribution; and, finally, evidence of asymmetry in the relationship between the growth rate of oil prices and inflation, with a higher transmission mechanism for decreasing rather than increasing oil prices. Practical implications Policymakers should remain alert to monitoring potential inflation increases and should take precautionary measures to anchor inflation expectations, because inflation reacts differently to positive and negative oil price shocks. Moreover, authorities should consider the asymmetric reaction of inflation to oil price shocks to adopt an appropriate monetary policy strategy to achieve the price stability target. Originality/value The paper used a quantile regression model with structural breaks, which has not yet been used in the literature.