This study examines the long and short term abilities of gold to hedge against inflation in Malaysia during the period from 1971 to 2011. The Johansen cointegration results reveal that there is a long term relationship between gold price and consumer price index. Using the Tsay’s linearity test, the findings demonstrate the nonlinear relationship between gold return and inflation rate. Thus, the nonlinear threshold vector error-correction model (TVECM) analysis is employed to analyze the causal relationship and gold’s hedging ability in short term. Gold is proven to be effective as a hedging tool against inflation, but effectiveness varies on different price momentums (based on threshold) and the time period. It is found that during high momentum regimes, gold return is able to hedge against inflation in Malaysia better than during low momentum regimes. Keywords: Gold; Inflation; Hedging Ability; Asymmetric Causality; TVECM.
This study aims to re-investigate the Pollution Haven Hypothesis (PHH) by analyzing the role of corruption. We argue that the impact of foreign direct investment (FDI) on pollution in the host country is contingent on the level of corruption of the host country. By using a sample of 70 developing countries, the findings reveal that FDI do not directly influence carbon dioxide (CO2) emission. However, further investigation using threshold regression analysis uncovers that PHH only exist in countries with high level of corruption. In other words, corrupted countries absorb"dirty" FDI and therefore generate more pollution than less corrupted countries.
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