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Doly Han, Brittany Harrison, Tenzin Tusndu , Jenna Brooks ECO 332 11/30/2013

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 Brooks ECO 332 11/30/2013. Introduction.

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Doly Han, Brittany Harrison, Tenzin Tusndu , Jenna Brooks ECO 332 11/30/2013

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  1. 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 Brooks ECO 332 11/30/2013

  2. 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??

  3. 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

  4. Regression Analysis Test • 1 or -1 = Perfect Correlation ----If correlation is closer to 1 or -1 = Stronger Relation • Negatively Correlated >> Variables Have Inverse Effect Ie. If Variable A Increases that causes Variable B to decrease • Positively Correlated >>> Variables move in the same direction Ie. If Variable A Increases that causes Variable B to Increase

  5. 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

  6. 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

  7. 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

  8. 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?

  9. Comparative Analysis of Correlations GDP & Share Prices China: .596 Australia: .699 United States: .696 • All positive & moderately strong GDP & Discount Rate China: .144 Australia: -.156 United States: -.321 • All very weak relationships

  10. Comparative Analysis of Correlations Discount Rate & Money Supply China: .064 >>>> Very Weak Australia: -.273 >>>> Weak United States: -.609 >>>> Moderately Strong

  11. 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)

  12. Questions??

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