Problem 5.9

Refer to exercise 3.19

The following table gives data on gold price, the Consumer Price Index (CPI) , and the New York Stock Exchange (NYSE) Index for the United States for the period 1977-1991. The NYSE Index includes most of the stocks listed on the NYSE, some 1500 plus.

Download:  0509.dat ,  0509.xls
 

Year
Price of gold at New York, $ per troy ounce
CPI 1982-84 = 100
NYSE Dec, 31, 1965 = 100
1977
147.98
60.6
53.69
1978
193.44
65.2
53.70
1979
307.62
72.6
58.32
1980
612.51
82.4
69.10
1981
459.61
90.9
74.02
1982
376.01
96.5
68.93
1983
423.83
99.6
92.63
1984
360.29
103.9
92.46
1985
317.30
107.6
108.90
1986
367.87
109.6
136.00
1987
446.50
113.6
161.70
1988
436.93
118.3
149.91
1989
381.28
124.0
180.02
1990
384.08
130.7
183.46
1991
36.024
136.2
206.33
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(a) Refer the two regressions given there, obtaining the usual output, such as standard errors,
     etc.(Eviews)

(b) Test the hypothesis that the disturbances in the two regression model normally distributed.
      (Suggested Answer)

(c) In the gold price regression, test the hypothesis that £]2 = 1, that is, there is a one-to-one
     relationship between gold prices and CPI.What is the p value of the estimated test statistics.
     (Suggested Answer)

(d) Repeat step (c) for the NYSE Index regression. Is investment in the stock market a perfect
     hedge against inflation? What is null hypothesis you are testing? What is its p value?
     (Suggested Answer)

(e) Between gold and stock, which investment would you choose? What is the basis for your
     decision? (Suggested Answer)¡(
 

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