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Explain the movement of the gprice and inf

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Q1. Gold has often been debated as a long-term hedge against inflation. In this question, we will test whether the U.S. data support this proposition. Panel 1A shows the plot of the gold price (GPRICE) per troy ounce in US$, while Panel 1B shows the annualised US inflation rate (INF) from December 1969 to August 2021. Panel 1A: Gold price US$ Panel 1B: US inflation rate (%) 2,000 30 20 1,600 10 1,200 800 -10 400 -20 -30 70 75 80 85 90 95 00 05 10 15 20 70 75 80 85 90 95 0.0 05 10 15 20

(a) Briefly explain the movement of the GPRICE and INF.

(b) Panels 1C and 1D show the Augmented Dickey-Fuller (ADF) test results for the log(GPRICE) (i.e., LGPRICE) and INF, respectively. Why is the ADF test preferred to the DF test?

(c) Write down the unit root test regression specification.

Reference no: EM133124429

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