Premium Essay

Regression Analysis - Interest Rate in Australia

In: Business and Management

Submitted By droppedb
Words 7765
Pages 32
35353
Regression Analysis

Mini Conference Report

Interest Rate Movement in Australia

Analysts:
Conrad Gutierrez – 10169050

Contents page: Introduction 3 Methodology 4 Multiple Linear Regression 4 * Model Assumptions 4 Full Model 5 New Full Model 7 Finding the Best Model * Method 1: Stepwise Regression 9 * Method 2: Forward Selection 11 * Method 3: Backward Elimination 12 * Method 4: Best Subset Selection 14

Analysis of the best model 15 * Model 1 15 * Model 2 21

Model Comparison 25

Conclusion 26

Comment 27

Introduction

Changes in interest rates are an inherent factor in the Australian economy. Its movements are a response to our economic cycle. Our daily lives, are directly affected by its movements and after effects, from other factors that may determine our standard of living for a period of time. Although the degree of this effect varies on different levels, it would be wrong to assume there will be selective people who won’t be touched by changes in interest rates.

As everyone with knowledge in Finance would have learned that, “a dollar today is no longer worth a dollar tomorrow”. Interest rate movements can have profitable and disastrous outcomes for many individuals. Take middle families with mortgages for example, in anticipation of the Reserve Bank’s announcement on whether they will increase the interest rate or not, for them a single base point increase will increase their mortgage payments, decreasing their disposable income and hence lowering their standard of living. On the other hand companies who swapped their floating rate loans for fixed rate loans would be unaffected and more or less relieved when interest rates rise. If…...

Similar Documents

Premium Essay

Interest Exchange Rate

...understanding on the forces driving exchange rate changes as these would affect investment and financing opportunities. This report analyzes the movements of three currencies, Australian Dollar (AUD), Icelandic Krona (ISK), and Indian Rupee (INR) against US dollar, and suggests events that may cause the violations of three chosen currencies. Analysis shows that factors including but not limited to inflation rates, interest rate differences, foreign investment as well as demand and supply of domestic currency are highly correlated with exchange rate changes in chosen currencies. Based on the analysis, Purchasing Power Parity is used to forecast spot exchange rates of those chosen currencies in one-year and three-year time. Rationales and limitations of PPP are also given to analyze the forecasts of three currencies. Table of Content 1.0 Introduction 1 2.0 Question 1 1 2.1 AUD/USD 1 3.0 Question 2 4 3.1 ISK/USD 4 3.2 INR/USD 6 3.3 Common Events that May Have Influenced the Exchange Rate Changes 8 4.0 Question 3 9 4.1 Forecast of Currencies 9 4.2 Forecast of AUD 10 4.3 Forecast of ISK 11 4.3 Forecast of INR 11 4.3 Comments on the Forecasts 12 References 13   Figures & Tables Figure 1 Exchange Rate of AUD/USD Over Five Years 1 Figure 2 Percentage Change of AUD/USD Exchange Rate 2 Figure 3 Trends of AUD/USD and Gold Price 2 Figure 4 AUD/USD Exchange Rate and Interest Rate over Five Years 3 Figure 5 Exchange Rate (ISK/USD) 4 Figure 6......

Words: 3687 - Pages: 15

Premium Essay

Understanding the Factors Affecting the Unemployment Rate Through Regression Analysis

...Understanding the Factors Affecting The Unemployment Rate Through Regression Analysis An Individual Report Presented to The Faculty of Economics Department In Partial Fulfillment To The Requirements for ECONMET C31 Submitted to: Dr. Cesar Rufino Submitted by: Aaron John Dee 10933557 April 8, 2011 1 TABLE OF CONTENTS I. INTRODUCTION 4 A. Background of the Study 4 B. Statement of the Problem 5 C. Objective 5 II. THEORETICAL FRAMEWORK AND RELATED LITERATURE 6 A. GDP 6 B. Average Years in School 6 C. Population 7 D. Literacy Rate 7 III. OPERATIONAL FRAMEWORK 9 A. Model Specification 9 B. List and Description of Variables 9 C. A-priori Expectations 10 IV. METHODOLOGY 12 V. EMPIRICAL RESULTS AND INTERPRETATIONS 13 A. Regression of the Original Model 13 2 B. Summary Statistics 15 C. Testing for Misspecification in the Model 16 D. Testing for Multicollinearity 17 E. Testing for Heteroscedasticity 18 VI. CONCLUSION 21 VII. BIBLIOGRAPHY 22 3 I. INTRODUCTION A. Background of the Study When we were still kids, we dream of what we want to be in the future. Older people will usually ask us if what we want to be in the future. Most of us will say, they want to be a doctor, lawyer or engineer to name some. We think and think about our career, but once we are already in the college level, we now dream to become......

Words: 4362 - Pages: 18

Premium Essay

Interest Rates

...INTEREST RATE RISK MANAGEMENT: DEVELOPMENTS IN INTEREST RATE TERM STRUCTURE MODELING FOR RISK MANAGEMENT AND VALUATION OF INTEREST-RATE-DEPENDENT CASH FLOWS Andrew Ang* and Michael Sherris† ABSTRACT This paper surveys the main concepts and techniques of recent developments in the modeling of the term structure of interest rates that are used in the risk management and valuation of interest-rate-dependent cash flows. These developments extend the concepts of immunization and matching to a stochastic interest rate environment. Such cash flows include the cash flows on assets such as bonds and mortgage-backed securities as well as those for annuity products, life insurance products with interest-rate-sensitive withdrawals, accrued liabilities for definedbenefit pension funds, and property and casualty liability cash flows. 1. INTRODUCTION The aim of this paper is to discuss recent developments in interest rate term structure modeling and the application of these models to the interest rate risk management and valuation of cash flows that are dependent on future interest rates. Traditional approaches to risk management and valuation are based on the concepts of immunization and matching of cash flows. These ideas were pioneered in the actuarial profession by the British actuary Frank Redington (1952). Interest rates have long been recognized as important to the risk management of insurance liabilities. Recent developments have incorporated a stochastic approach to modeling......

Words: 18994 - Pages: 76

Premium Essay

Interest Rates

...Interest Rates, Income Distribution, and Monetary Policy Dominance: Post Keynesians and the "Fair Rate" of Interest Author(s): Louis-Philippe Rochon and Mark Setterfield Source: Journal of Post Keynesian Economics, Vol. 30, No. 1 (Fall, 2007), pp. 13-42 Published by: M.E. Sharpe, Inc. Stable URL: http://www.jstor.org/stable/27746784 . Accessed: 28/08/2013 13:51 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. . M.E. Sharpe, Inc. is collaborating with JSTOR to digitize, preserve and extend access to Journal of Post Keynesian Economics. http://www.jstor.org This content downloaded from 140.159.34.46 on Wed, 28 Aug 2013 13:51:45 PM All use subject to JSTOR Terms and Conditions LOUIS-PHILIPPE ROCHON AND MARK SETTERFIELD Interest rates, income distribution, and monetary policy dominance: Post Keynesians and the "fair rate" of interest Abstract: paper In light of the growing interest in "new consensus" models, Post Keynesian alternatives to the Taylor rule. It......

Words: 7910 - Pages: 32

Premium Essay

An Analysis of Exchange Rate and Interest Rate

...AN ANALYSIS OF THE EFFECTS OF INTEREST RATE AND EXCHANGE RATE CHANGES ON STOCK MARKET RETURNS: EMPIRICAL EVIDENCE OF GHANA STOCK EXCHANGE A thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirement for the degree of COMMONWEALTH EXECUTIVE MASTERS OF BUSINESS ADMINISTRATION Institute of Distance Learning, KNUST JUNE, 2011 DECLARATION I hereby declare that this submission is my own work toward the Commonwealth Executive Master of Business Administration and that, to the best of my knowledge, it contains no material previously published by another person nor material which has been accepted for the award of any other degree of the University except where due acknowledgement has been made in the text. RANSFORD CHARLES ENYAAH (STUDENT ID No: 20103521) …………………… Signature …………………. Date Certified by: EDWARD ACHEAMPONG (SUPERVISOR) …………………… Signature …………………. Date Certified by: ……………………………… Head of IDL …………………… Signature …………………. Date i DEDICATION I dedicate this project work to the Lord Almighty and all my loved ones. ii ACKNOWLEDGEMENT First of all, I thank the almighty God for fulfilling his promises to my life and for granting me the strength, wisdom and knowledge to complete this work My profound gratitude goes to my Supervisor, Mr. Edward Acheampong (Lecturer, Methodist University College, Ghana) for his unflinching......

Words: 13267 - Pages: 54

Premium Essay

Interest Rates

...industry began to fail, the US Treasury increased the interest rate on Treasury bills as a way to bring more money back to the government. As you can see from the graph, in 2009 a 1 year Treasury bill had an average interest rate of 0.55%. Throughout the short recession, the interest rate remained above 0.20% because Treasury bills were not in high demand. People had their own financial troubles, so very few could afford to send money to the government. In the first few quarters of 20122, you can see a drop in the interest rate. This was a result of the recession coming to an end. More people were able to buy Treasury bills, lowering the interest rate. In early 2012, the interest rate rose slightly, then dropped off to 0.12%, where it has remained steady since. Taking a look at the four week, three month, and six month Treasury bills, you can see the same trends. In the first quarter of 2011, the four week bill dropped substantially, from 0.10% to 0.02% and remained there until the economy began to pick back up. Notice the steady rise during 2012, and then another drop off during the second quarter of 2013. This means more people were buying Treasury bills. The three and six month Treasury bills were very similar during the recession. At the beginning of 2009, those bills were relatively high in interest rates. As there was a larger demand, the interest rates began to drop off, until 2012, when demand eased up and the interest rates began to rise again. During 2013, both......

Words: 667 - Pages: 3

Premium Essay

Interest Rate

...With HACK's bank recent cut on interest rate 12 months earlier, loan base has grown, however profit has not, this is due to the fact that lowering interest rate does not necessary mean a rise in profit as consumers may refuse to hold the bank's money and present it to a rival bank, thus does not return to the Hack bank, subsequently causing a fall in security investments and deposits as well as a loss in an interest earning asset. In other words, the non banking public does not want to hold funds with HACK bank possibly due to competitive interest rates for deposits or stability. Although it would seem logical for the bank to lower credit standards or reduce interest rate in order to advance credit and increase profit. It is not necessarily the right thing to do, as the non banking public seek to hold the bank's deposits in a hostile free bank, with minimal risk. Consequently the non banking public will turn away from institution who offer a lower credit standard or lower interest rate due the possibility of non repayment thus consequently could impact the non banking publics asset, this is one of the many reasons why the non banking public refuse to hold funds with a bank that lowers their standards. Instead of lowering rates, HACK bank should be paying competitive rates, to indicate to the market that they can keep up and is stable enough to hold funds. Although HACK bank's loan base has increased, its cut on interest rate, has not benefited in the liquidity side of......

Words: 478 - Pages: 2

Premium Essay

Interest Rates

...Exam 2 Study Guide Chapter 6: Interest Rates 1. Using the yield curve to predict interest rates (section 6-6) 2. Determinants of market interest rates (section 6-3) Be sure you know how to calculate any given components with given supporting information. 3. What determines the shape of a yield curve (section 6-5) Practice problems: 6-2, 6-3, 6-4, 6-5, 6-7, 6-9, 6-11, 6-14 Chapter 7: Bond Valuation 1. Key characteristics of bonds (7-2) 2. Bond valuation (7-3) 3. Bonds with semi-annual coupons (7-6) 4. Assessing a bond’s risk (7-7) 5. Bond yields (7-7) Practice problems: 7-1, 7-2, 7-3, 7-4, 7-5, 7-8, 7-9, 7-16 Chapter 8: Risk & rates of Return 1. Stand-Alone risk (8-2) 2. Risk in a portfolio context (8-3) 3. Relationship between risk and rate of return (8-4) 4. Implications for corporate managers & investors (8-6) Practice problems: 8-1, 8-3, 8-4, 8-6, 8-7, 8-11, 8-12, 8-14 *In addition please review the Cengage assignments & Team application activities that apply to the above chapters. Important note: Please note that this is only a study guide and should not be taken as the actual content of your second exam. In other words, reading the sections above and attempting the problems recommended should put you in a comfortable position to handle majority of questions in the exam. It is therefore prudent to expand your preparation beyond this guide....

Words: 265 - Pages: 2

Premium Essay

Regression Analysis

...Acts 430 Regression Analysis In this project, we are required to forecast number of houses sold in the United States by creating a regression analysis using the SAS program. We initially find out the dependent variable which known as HSN1F. 30-yr conventional Mortgage rate, real import of good and money stock, these three different kinds of data we considered as independent variables, which can be seen as the factors will impact the market of house sold in USA. Intuitively, we thought 30-yr conventional mortgage rate is a significant factor that will influences our behavior in house sold market, which has a negative relation with number of house sold. When mortgage rate increases, which means people are paying relatively more to buy a house, which will leads to a decrease tendency in house sold market. By contrast, a lower interest rate would impulse the market. We believe that real import good and service is another factor that will causes up and down in house sold market. When a large amount of goods and services imported by a country, that means we give out a lot of money to other country. In other words, people have less money, the sales of houses decreased. Otherwise, less import of goods and services indicates an increase tendency in house sold market. We can see it also has a negative relationship with the number of house sold. Lastly, we have money stock as our third impact factor of house sold. We considered it has a positive relationship with the number of...

Words: 723 - Pages: 3

Premium Essay

Interest Rates

...Jeniffer Kim Theory of Interest Professor Chiacchiere How Interest is Effecting the U.S. Markets Today In 5000 BC, the lending of “food” money was commonplace in Middle East civilizations. Early loans and interest were based on agricultural produce. Because the acquired seeds and livestock could be replenished and reproduce themselves, the people could easily repay loans with interest using these goods. Throughout history, the practice of having interest charged on loans developed over the years. Today, people pay interest using various foreign currencies. It has been legal and regulated by different states, but it also has been restricted in different countries because of religious reasons. In the past, some cultures have regarded charging any interest for loans as sinful. Charging interest was known as ursury and Christians, Muslims and even Buddhists condemned those who practiced it. Although some disapproved of charging interest, there is no doubt that it has played a large role in moving the markets and impacting our society today. In the U.S., changes in interest rates can have both a positive and negative effect on the economy, inflation and recessions, and the stock and bond markets. Many may ask why people use interest in their everyday lives and how it makes a direct impact on the economy. When an individual takes out a loan from a bank or another party, there is a possibility that the borrower will not repay the money. The purpose of interest is to......

Words: 1382 - Pages: 6

Premium Essay

Historical Interest Rates and Future Trends in Australia and China Money Market

...find the brief description of Australia and china money market and interest rate trends. Besides, the leading roles of changing structure of economy and monetary policy for each country will be discussed in detail. Moreover, the most crucial point of this report is to analyse both historical and future money market interest rate trends in these two countries. Table of contents Transmittal document 1 Table of contents 3 Executive summary 4 Introduction 5 Australia 5 Historical Money Market Interest Rates in Australia 5 Prediction of the coming interest rate trend in Australia 7 China 7 Historical Money Market Interest Rates in China 8 Prediction of the coming interest rate trend in China 10 Conclusion 11 Appendices 12 Reference list 13 Executive summary This report aims to discuss the money market in two countries. Through a series of data and analysis, both historical and future interest rate in these two countries as well as events that lead the trends will be presented in this report. Furthermore, structural change for monetary policy that shows effects on the interest rate trends will be discussed particularly. Meanwhile, concerning the influences that financial instruments would have on the interest rate change, some basic market information such as balance between supply and demand as well as liquidity effect are demonstrated specifically. On the other hand, some forecasts of the interest rate tendency of Australia and china will also be......

Words: 2390 - Pages: 10

Premium Essay

Interest Rate

...Interest rates are considered to be the price of holding money and the opportunity cost of any investment. After analyzing interest rates in our course do you think that interest rate in Egypt reflects the real opportunity cost of holding money? Why or why not? Please support your answer with all the references you have searched. Interest Rate is: The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest is charged by lenders as compensation for the loss of the asset's use. In the case of lending money, the lender could have invested the funds instead of lending them out. That’s why interest rate should cover the opportunity cost of lending the money to the borrower. Also, interest rate should cover the inflation rate in the economy, as by time the lender receives the principal again due to inflation, the money will be of less value than when first lent to the borrower. So, if the interest rate doesn’t cover both the opportunity cost and inflation, it’ll be irrational decision to lend the money. For example, if the lender can invest in some real estate and construction projects with an average return of 10% & if inflation is 10%, then the interest rate should be more than 20% to be rational choice for the lender to lend the money. Interest rate in Egypt: (Lending Interest Rate) So, The lending interest rate is now at 9.75% annually, so, does this rate covers the inflation rate & opportunity cost of......

Words: 332 - Pages: 2

Premium Essay

Interest Rate

...swelling or financing expenses to secure the dauntlessness of costs moreover, the normal trust in the nation's money and the cash related technique also tries to offer help with improving the fiscal advancement and steadfastness and to give more business open entryways besides, to keep up obvious exchange rates with various countries money related structures. Monetary technique can either be expansionary or contractionary . In case it is expansionary it grows the total of supply of the trade out the economy brisk however if it s contractionary it broadens the money supply continuously . In the latest year morocco lessened its credit cost from 2.5% to 2.25% and a significant extended period of time back it was 6.5% and each one of this to urge nationals to stop saving money and to start eating up also, spending logically moreover to ask outside budgetary experts to place assets into the country and even locals will start getting progressively money and eat up more which will be a gigantic favorable position for the economy in light of the fact that my reducing the advance charge we diminish the cost of securing money and each one of this will outcome of cutting down the rate of unemployment and growing optional income for customers. A part of exchange components that we can use to upgrade the economy's advancement are : * Improving HR : The sum and the way of open individuals can clearly impact the improvement of the economy since a country can't have an......

Words: 831 - Pages: 4

Premium Essay

Interest Rate and Loan Supply

...Jurnal £kollomi Malaysia 35 (2001) 61 - 68 Interest Rate and Loan Supply: Islamic Versus Conventional Banking System Liza Marwati Mohd Yusoff Aisyah Abdul Rahman Norazlan Alias ABSTRACT This paper attempts to explore the effect of interest rate 011 loan supply of Islamic banking alld Convemional banking system. The analysis segregated the Islamic and COllvellfional banking system imo commercial bank, finance company alld merchant bank. Overnight alld 3 month Klibor are llsed as interest proxy. Unit root test, Granger Causality test, Akaike Information Criterion and Regression analysist are IIsed in the study. The results of Granger Causality test indicate that the growth of overnight Klibor ca uses changes in the growth of Islamic and Conventional loan of Mercham Banks significantly and from the regression analysis, it is confirm that Islamic and Conventional loan growth of merchant bank are significantly positive related to overnight Klibor. INTRODUCTION The additional amo}Int a borrower pays a lender, over and above the borrowed sum (principal) is commonl y called interest. This interest depends on the size of the principal and the length of time the borrower takes to repay the principal and interest. For this reason, and for computational convenience, interest is usually expressed in terms of percentage per annum and is called the rate of interest. In banks there are three players. The players are the bank, the depositor and the borrower. The depositor......

Words: 2532 - Pages: 11

Premium Essay

Interest Rates

...Interest Rates Write two paragraphs with about how interest rate affects our purchasing decisions. Paragraph One Changes in interest rates can have positive and negatives effects. According with the interest rate that we have is the amount of money that we are going to paid every month for a loan. If we have a high interest rate we have a high monthly payment, and we need to make sure that we can afford that. If we have a low interest rate our monthly payment is less. If the interest rates change the incentive for individuals to take out loans to buy goods will also change. In the interest falls for example, then the charges for a loan to buy larger items likes cars, furniture, electrical equipment, and so on, is also likely to fall. As a result more people might be willing to buy such items and the business selling these items might see and unexpected rise in demand for their products. Equally, if the interest rate rises, people might be put off buying things, since it is now more expensive to pay back the loan. Business selling the same products above, might see and unexpected fall in the demand of their products. For the individuals and for the business the changes in the interest rates can have a big impact in their financial situation. Paragraph Two Further effects of changing interest rates can affect our mortgage. For many of us, the mortgage payment is the biggest single monthly outgoing and houses are not paid off......

Words: 351 - Pages: 2