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. According to the real business cycle theory, productivity shocks are an important source of business cycles.
Using the Cobb-Douglas production function (for example, Eq. 3.2) and annual data since 1961, calculate and graph U.S. total factor productivity. Use real GDP for Y, the capital stock from the source listed in Table 3.1 for K, and civilian employment for N. Look for periods marked by sharp changes up or down in productivity. How well do these changes match up with the dates of business cycle peaks and troughs? (See Chapter 8.)2. This question asks you to study whether unanticipated declines in the money stock tend to raise interest rates and lead to recessions, as implied by the misperceptions theory.
a. Using quarterly data from 1960 to the present, define unanticipated money growth in each quarter to be the rate of M2 growth (expressed as an annual rate) from the preceding quarter to the current quarter, minus average M2 growth over the preceding four quarters. (Average M2 growth over the preceding four quarters is a simple approximation of expected money growth.) Plot unanticipated money growth since 1960. What happens to unanticipated money growth before the recessions in the 1960s, 1970s, and 1980s?
b. On a separate figure, graph unanticipated money growth along with the nominal three-month Treasury bill interest rate. In the 1960s, what happens to the nominal interest rate when there is a sharp upward spike in unanticipated money growth?
c. On a separate figure, graph unanticipated money growth against the real three-month Treasury bill interest rate (the nominal rate minus the inflation rate). What is the relationship between unanticipated money growth and the real interest rate in the 1973-1975 recession?
3.
Are people's inflation forecasts rational? To investigate this question, go to the website of the Federal Reserve Bank of Philadelphia at www.philadelphiafed.org. Find the webpages for Research and Data and look for data from the Survey of Professional Forecasters on forecasts of CPI inflation. Then, go to FRED and get actual data on the CPI. Make a plot showing the forecast of inflation at a given date on the horizontal axis against the actual inflation rate on the vertical axis. If forecasts are rational, what pattern should you see in the data? What pattern do you observe in your plot? Does the evidence support the idea that people's inflation forecasts are rational?4. The University of Michigan has conducted an extensive survey of consumers since 1978, including a question on consumers' forecasts of inflation. Gather data on inflation expectations from the Michigan survey using FRED. First, plot those forecasts along with forecasts from the Survey of Professional Forecasters for CPI inflation (see the previous problem for the location of the data). Is one set of inflation expectations consistently different from the other? Next, compare the two sets of forecasts with the actual data on the CPI. Make a time-series plot of both forecasts and the actual value. Which survey seems to be more accurate? Does the evidence support the idea that people's inflation forecasts are rational?
More on the topic WORKING WITH MACROECONOMIC DATA:
- WORKING WITH MACROECONOMIC DATA
- WORKING WITH MACROECONOMIC
- Abel A.B., Bernanke B., Croushore D.. Macroeconomics. 10th Edition, Global Edition. — Pearson,2021. — 690 pp., 2021
- WORKING WITH MACROECONOMICDATA
- CHAPTER SUMMARY
- Population Dynamics
- Learning Objectives
- Harvard in 1935
- CONCLUSION
- References