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A Comparative Policy Analysis on Stock Market, Money
Supply and Interest Rates in US, China and Australia
during 2000 – 2011
DOLY HAN, BRITTANY HARRISON, TENZIN TUSNDU, JENNA BROOKSECO 332
11/30/2013
Introduction Understanding GDP’s relationship to economic variables is
crucial to policy makers Important component in ensuring effective macro-
economic stability policies Stronger Relationship >>> More Attention when
developing policies to grow GDP Comparative Analysis for years 2000-2011 between 1. China 2. United States 3. Australia Why these countries??
Variables Selected
Real Gross Domestic Product Money Supply -----M2 for US & China -----M3 for Australia Stock Market ------Total Share Prices for all shares Discount Rate Gathered from FRED website
Regression Analysis Test1 or -1 = Perfect Correlation ----If correlation is closer to 1 or -1 = Stronger RelationNegatively Correlated >> Variables Have
Inverse EffectIe. If Variable A Increases that causes Variable B to decreasePositively Correlated >>> Variables move
in the same directionIe. If Variable A Increases that causes Variable B to Increase
China GDP’s correlation with Money Supply (M2)=.994 ^^^ Very Strong Positive Correlation GDP’s correlation with Share Price=.596 ^^^ Moderate Positive Correlation GDP’s Correlation with Discount Rate=.144 ^^^ Weak Positive Correlation
2000-0
1-01
2001-01-01
2002-01-01
2003-01-01
2004-0
1-01
2005-01-01
2006-01-01
2007-01-01
2008-0
1-01
2009-01-01
2010-01-01
2011-01-01
-50.0
0.0
50.0
100.0
150.0
200.0Economic Changes in China
GDP % Change M2 % ChangeShare Prices % Change Discount Rate % Change
United States GDP’s correlation with Money Supply (M2)=.898 ^^^ Very Strong Positive Correlation GDP’s correlation with Share Price= .696 ^^^ Strong Positive Correlation GDP’s Correlation with Discount Rate= -.321 ^^^ Weak Negative Correlation
GDP Money
Supply(M2)
Share
Prices
Federal Fund
Rate
GDP 1
Money Supply
(M2)
0.8985725
846
1
Share Prices 0.6968015
196
0.40940654 1
Federal Fund
Rate
-
0.3214673
51
-0.609667792 0.397731
85
1
Australia GDP’s correlation with Money Supply (M2)=.970 ^^^ Very Strong Positive Correlation GDP’s correlation with Share Price=.699 ^^^ Strong Positive Correlation GDP’s Correlation with Discount Rate= -.156 ^^^ Weak Negative Correlation
2000-01-01
2001-01-01
2002-01-01
2003-01-01
2004-01-01
2005-01-01
2006-01-01
2007-01-01
2008-01-01
2009-01-01
2010-01-01
2011-01-01
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
Economic Changes in Australia
GDP % ChangeM2 % ChangeShare Prices % ChangeAustralia Discount Rate
Comparative Analysis of Correlations
GDP & Money Supply
China: .994 Australia: .970 United States: .895
Money Supply is important tool in conducting monetary policy Policies are placed to control money supply to keep GDP growing
ie: US open market operations Why is the United States lower?
Comparative Analysis of Correlations
GDP & Share Prices
China: .596Australia: .699United States: .696
All positive & moderately strong
GDP & Discount Rate
China: .144Australia: -.156United States: -.321
All very weak relationships
Comparative Analysis of Correlations
Discount Rate & Money Supply
China: .064 >>>> Very WeakAustralia: -.273 >>>> WeakUnited States: -.609 >>>> Moderately Strong
Conclusions
More factors play a role but all things held constant all three countries have similar correlations
Evident that some of these macro-economic variables do have strong effects on GDP and play a key role in the stabilization of the economy
When growing GDP--- We assume policymakers would focus a great deal on….
---- Stock market ---- Money Supply (Monetary Policy)
Questions??