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 /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 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 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  Po sitively Correlated >>> Variables move in the same direction Ie. 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

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= ^^^ Weak Negative Correlation GDP Money Supply(M2) Share Prices Federal Fund Rate GDP 1 Money Supply (M2) Share Prices Federal Fund Rate

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= ^^^ Weak Negative Correlation

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:.596 Australia:.699 United States:.696  All positive & moderately strong GDP & Discount Rate China:.144 Australia: United States:  All very weak relationships

Comparative Analysis of Correlations Discount Rate & Money Supply China:.064 >>>> Very Weak Australia: >>>> Weak United States: >>>> 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??