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. During much of the postwar period, the Fed attempted to stabilize nominal interest rates.

Calculate and graph the quarter-to-quarter change in the three-month Treasury bill rate since 1961. What happened to the volatility of interest rates in the 1979-1982 period? What has happened to the volatility of interest rates since 1982? Does your answer change if your measure of the interest rate is the ten-year government bond rate?

2. As discussed in the text, if money demand is unstable, the Fed may prefer to target interest rates rather than the money supply itself. When the Fed follows an interest-rate-targeting policy, “Fed watchers" in finan­cial markets and the media typically look to changes in short-term interest rates rather than changes in the money supply to gauge the Fed's intentions.

Graph the three-month Treasury bill interest rate and the unemployment rate, using monthly data since 1961. If changes in monetary policy are reflected primarily by changes in the short-term interest rate, what relationship would you expect to see between these two variables? Does this relationship hold up in the data?

3. Plot monthly data, beginning in 1990, on the U.S. monetary base and excess reserves of depository institutions. How would you characterize the rela­tionship between the two variables before and after the financial crisis in the fall of 2008? What explains this changing relationship?