A Study between Inflation Rate, Macroeconomic and Financial Variables

This study examines the relationship amongst chosen economic indicators; Unemployment, Inflation Rate, LIBOR Rate and the FTSE 1OO stock market index. Initial literature research was conducted to ascertain what previous studies and research had been undertaken for these indicators and the topic. From this it was possible to identify previous findings which could either be supported by this study or question previous results. The chosen model technique was a vector autoregressive (VAR) model, which studied a chosen period between 1997 to December 2010. The findings suggest that Inflation does influence the indicators in some respects. This therefore proves relationships do exist between the chosen variables although in many cases, the recommendation is that further in-depth study be carried out to distinguish exact results. This study is of particular interest and important to monetary policy decision makers and analysts as it will detect areas where further analysis is necessary in order to ensure correct policy decision making