MONEY SUPPLY AND FINANCIAL MEASURES COMPOUND ANNUAL GROWTH RATES
The growth of various measures of money supply have frequently been used to indicate future expected inflationary trends in the economy. Similarly, it has been suspected that easy money has been good for growth in stock markets. The Federal Reserve (Fed) sets targets for growth in money (previously M1-M3, now primarily M2) and both preliminary weekly and monthly results are studied by analysts and forecasters. Weekly or monthly growth rates may vary, but the Fed tries to adjust as needed, and the annual rates are usually close to targets. Historically, the stock market indices are not targeted, but Former Federal Reserve Chairman Greenspan has indicated that the Fed watches the stock market for excessive growth and significant “wealth effects.” More recently, it seems the Fed is considering the drastic declines that have occurred in the stock market. Hence, changes in growth rates indices should be of some interest to the Fed and to average investors who observe how their wealth and retirement funds are growing or decreasing.
Since the US economy typically grows year-to-year, most economic variables have a natural upward trend. Thus, they typically have positive growth rates. Some economists argue that because most growth rates are positive, the rates of change in growth rates are more meaningful when analyzing economic trends and relationships among economic variables. Due to the UAE Dhs peg to the USA dollar, it is expected that monetary policy of the USA may affect the monetary aggregates of the UAE
The objectives of this assignment are to analyze the historical relationships between various monetary aggregates and related economic variables. Included are measures for consumer credit (ConsCredit), inflation measured by the Consumer Price Index (CPI), the Federal Funds rate, GDP, the broad stock market (S&P 500), and M1and M2 data are included for years from 2002-2018, which means 16 years of changes will exist. The data for monetary aggregates (M1 and M2) are in $Billions for the US data available at the Federal Reserve website. http://www.federalreserve.gov/datadownload/, http://research.stlouisfed.org,
Compute the rate of change in: M1, M2, S&P 500,CPI and ConsCredit. That is, compute the year-to-year changes in the growth rates of these variables.
Comments may be included on the spreadsheet or on a separate sheet.
Example of discussion between economic variables:
The Fed Funds rate and Inflation: Suppose that the correlation between these two variables were negative. As we have learned this semester, the monetary policy of the Federal Reserve has shifted from a goal of full employment to a goal of low price inflation combined with sustainable economic growth. Thus, as inflation increases, threatening economic growth, the Fed raises the Fed Funds rate to curtail and prevent higher inflation. So, it should be expected that as the Fed Funds rate is raised, economic growth will slow and inflation will decrease.
DUE DATE: 28thof march, 2019until 2 PM as BLACKBOARD SUBMISSION. NO EMAIL AND LATE SUBMISSIONS WILL BE ACCEPTED!
Marks Gradingcriteria allocated |
Marks scored |
ANALYSIS
QUESTION 1 15 Data collection, analysis, presentation QUESTION 2 10 Data collection, analysis, presentation QUESTION 3 15 Data collection, analysis, presentation QUESTION 4 15 QUESTION 5: DISCUSSION AND COMMENTS 15 REGRESSION ANALYSIS AND ITS INTERPRETATION 15 CHARTSandGRAPHS for required questions 15 |
|
TOTAL 100 |