THE RELATIONSHIP BETWEEN INFLATION, EXCHANGE RATE, AND STOCK PRICES TOWARD GDP IN CHINA

Phiong, Shi Ying (2022) THE RELATIONSHIP BETWEEN INFLATION, EXCHANGE RATE, AND STOCK PRICES TOWARD GDP IN CHINA. [Final Year Project Report] (Unpublished)

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Abstract

The general objective of this study is to investigate the relationship between inflation, stock price, and exchange rate towards GDP China. In this study, the annual data of time series had been used from year 1990 until year 2020. The variables that had been used in this study is gross domestic products growth (GDPG), inflation, stock price, and exchange rate. The test that had been used in this study to get the result is consists with Unit root test, Johansen-Juselius (JJ) test and Granger causality test. Before applying these methods, a unit root test consisting of Augmented Dickey Fuller (ADF) and Philip-Perron test (PP) was used to test whether the variables were stationary or not. The result shows that all the variables are non-stationary at level and become stationary at first difference in ADF and PP test, so that can continue proceed with other test. All the variables are significant in this study. This study had found a co-integration test by using the JJ test to determine the cointegration vectors. This method has been achieved the specific objective of this study by having co-integration vector to determine the relationship between the independent variables and dependent variables. This study also found that there are three unidirectional causalities with from INF to GDPG, from ER to GDPG and from ER to INF in the long run relationship. Last, the variables that had fulfilled all the rules of ECT is exchange rate.

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