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					                     GDP
Published by: Bureau of Economic Analysis
Frequency: Quarterly
Period Covered: prior quarter
Volatility: Moderate
Market significance: very high
Web site: www.doc.gov
How do markets react?
             GDP ↑ > Stock market ↑
             GDP ↑ > Bond market ↓
             GDP ↑ > Dollar appreciates
Some details:
   - best measure of economic activity
   - 3 estimates every quarter:
           a) Advance report: first month of the
           quarter. It is based on consumption
           information and some information on the
           other components of GDP.
           b) Preliminary report: second month of the
           quarter, includes almost all information.
           c) Revised (or final) report: third month of the
           quarter, includes all information.
- The GDP report contains two estimates of real
GDP
      1. Built from the final demand categories:
              C+I+G+NX

      2. Built from the income side:
              Personal income and corporate profit

      by construction 1 = 2
- The GDP report contains information about inflation:
    1. Implicit deflator: measures a combination of price
    changes and changes in the composition of GDP.
    Not a pure measure of inflation.

    2. Fixed-weight deflator: provides a measure of price
    changes for a given basket of goods and services. It
    is a pure measure of inflation.

    3. Chain weighted price deflator: the index allows
    the quantity of purchase-weights to vary over time.
    Hence, real output is based on contemporaneous
    spending patterns.
- Note that it is possible to use information on monthly
indicators to forecast GDP
            EX. Personal consumption expenditures:
                         -Durable goods
                         -Non-durable goods
                         - Services

- Keys to interpreting the GDP report:

    a) Pay close attention to inventory changes, the
    behavior of inventories has significant implications
    for future growth.
b) Focus upon the GDP chain-weighted price index
as the most comprehensive measure of prices in the
economy. It is a more comprehensive price indicator
than the CPI or the PPI.

c) Look at the pace of exports and imports. It has
implications for the exchange rate market.

d) Keep in mind that, traditionally, revisions to the
GDP figures have a significant impact on financial
markets.
                    Statistical Analysis
Variables:
GDP: Real GDP measured in billions of chained 2000 dollars. Source:
  Bureau of Economic Analysis.

Stock market measure: Dow Jones Average.
                      Source: www.djindexes.com

FED announcement dates: binary variable, assumes the value of 1 in
  any period when the FED made a policy announcement and 0
  otherwise. Source: Federal Reserve

Period of Analysis: 1990:I-2003:IV
Graphic relationship between GDP and the Stock
                     Market

                                    Levels

                                                                 8.4

                                                                 8.0
         9.3

                                                                 7.6
         9.2

                                                                 7.2
         9.1

                                                                 6.8
         9.0

                                                                 6.4
         8.9

         8.8
               1990   1992   1994    1996   1998   2000   2002

                             LOG(DJ)        LOG(GDP)
               Annual Growth Rates


                                                        .4

                                                        .2


.06                                                     .0


.04                                                     -.2


.02                                                     -.4


.00

-.02
       1990   1992   1994   1996   1998   2000   2002

                 @PCHY(DJ)         @PCHY(GDP)
                            Descriptive Statistics

               LOG(DJ)            LOG(GDP)
Mean            7.547097          9.053289
Median         7.623849           9.048208
Maximum         8.106940          9.268619
Minimum         6.782985          8.859477
Std. Dev.       0.425978          0.132335
Skewness       -0.221121          0.000139
Kurtosis        1.505406          1.557901

Jarque-Bera    5.668577            4.852514
Probability    0.058760            0.088367

Sum            422.6375            506.9842
Sum Sq. Dev.   9.980149            0.963188

Observations           56          56
Correlation    .94
                          Regression Analysis (Long Run)


Dependent Variable: LOG(DJ)
Method: Least Squares
Date: 04/10/04 Time: 20:15
Sample: 1990:1 2003:4
Included observations: 56

Variable          Coefficient          Std. Error          t-Statistic     Prob.
C                 -19.72734            1.396976            -14.12146       0.0000
LOG(GDP)          3.012655             0.154290            19.52596        0.0000
FED               -0.077969            0.049149            -1.586392       0.1186

R-squared          0.875937     Mean dependent var                       7.547097
Adjusted R-squared 0.873640     S.D. dependent var                       0.425978
S.E. of regression 0.151423     Akaike info criterion                    -0.90241
Sum squared resid 1.238166      Schwarz criterion                        -0.83008
Log likelihood     27.26762     F-statistic                              381.2633
Durbin-Watson stat 0.257150     Prob(F-statistic)                        0.000000
                             Regression Analysis (short run)


Dependent Variable: DLOG(DJ)
Method: Least Squares
Date: 04/18/04 Time: 20:00
Sample(adjusted): 1990:2 2003:4
Included observations: 55 after adjusting endpoints

Variable            Coefficient          Std. Error            t-Statistic   Prob.
C                   0.014347             0.020774              0.690620      0.4929
DLOG(GDP)           2.127120             1.866384              1.139701      0.2596
FED                 -0.019682            0.020970              -0.938601     0.3523

R-squared          0.043835       Mean dependent var           0.019761
Adjusted R-squared 0.007059       S.D. dependent var           0.077726
S.E. of regression 0.077452       Akaike info criterion        -2.225328
Sum squared resid 0.311934        Schwarz criterion            -2.115837
Log likelihood     64.19652       F-statistic                  1.191955
Durbin-Watson stat 2.265988       Prob(F-statistic)            0.311785
Short-run response of DJ to GDP
                         Response to Cholesky One S.D. Innovations ± 2 S.E.

            Response of DLOG(DJ) to DLOG(DJ)                     Response of DLOG(DJ) to DLOG(GDP)
 .10                                                  .10

 .08                                                  .08

 .06                                                  .06

 .04                                                  .04

 .02                                                  .02

 .00                                                  .00

 -.02                                                 -.02

 -.04                                                 -.04
        1    2   3   4    5   6   7   8   9     10           1     2   3   4   5   6   7   8   9      10




            Response of DLOG(GDP) to DLOG(DJ)                    Response of DLOG(GDP) to DLOG(GDP)
.007                                                 .007

.006                                                 .006

.005                                                 .005

.004                                                 .004

.003                                                 .003

.002                                                 .002

.001                                                 .001

.000                                                 .000

-.001                                                -.001
        1    2   3   4    5   6   7   8   9     10           1     2   3   4   5   6   7   8   9      10
              Discussion of the Results

The graphic analysis suggests that there exists a
positive relationship between GDP and the performance
of the stock market.
This relationship is confirmed by the correlation
coefficient.
The results of the long-run regression analysis indicate
that the response of the stock market to changes in GDP
is positive and significant. In addition, announcements by
the FED show a negative relationship with stock market
performance. However, these results are not sustained
in the short run.

				
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posted:6/21/2012
language:English
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