WORKING WITH MACROECONOMIC DATA
For data to use in these exercises, go to the Federal Reserve Bank of St. Louis FRED database at fred.stlouisfed.org.
1. Graph the current yield curve (see the section “Time to Maturity" in this chapter and the graph of the yield curve in Chapter 4, “In Touch with Data and Research: Interest Rates"), plotting the interest rate on bonds with different maturities against their time to maturity, using data from the Federal Reserve's H.15 release (www.federalreserve.gov/releases/h15).
Use the Fed's “constant maturity" series of rates, which are designed for this purpose. Then look at the H.15 release from one year earlier and plot the yield curve for that date as well. What has happened to the term structure of interest rates over the past year? What economic events do you think have led to this change?2. Graph the CPI inflation rate, M1 money growth, and M2 money growth for the United States, using annual data since 1959. (Find annual growth rates for December to December.) Also graph the three-year average rate of inflation and the three-year averages of M1 growth and M2 growth, starting with 1962. (The three-year average rate of inflation for, say, 1978 is the average of the inflation rates in 1976, 1977, and 1978. Similarly, the three- year average money growth rate for 1978 is the average of the money growth rates for 1976, 1977, and 1978.)
Is the inflation rate more closely related to M1 growth or M2 growth? Is the relationship of inflation
to money growth stronger in the short run (in annual data) or in the longer run (using three-year averages)? What has happened to the link between inflation and money growth since 1980?
3. Graph the three-month Treasury bill interest rate, the ten-year government bond interest rate, and the CPI inflation rate (based on the percentage change in the CPI from one year earlier) on the same figure, using data since 1961. Make sure that the units are comparable.
a. In general, how are changes in interest rates related to changes in inflation? Why?
b. Is the three-month rate or the ten-year rate more sensitive to current changes in inflation? Give an economic explanation.
4. Find and plot data since 1960 on the net worth as a percentage of disposable personal income of households and nonprofit organizations. In which periods was net wealth as a percentage of income generally rising? In what periods was it falling? By what percentage did it decline during the Great Recession from the fourth quarter of 2007 to the second quarter of 2009? (Note that net wealth data for nonprofit organizations is included with that of households for technical reasons but the net wealth of households is far larger than that of nonprofit organizations, so the data series mainly relates to households.)