WORKING WITH MACROECONOMICDATA
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 index of consumer sentiment, using quarterly data since 1965.
Construct scatter plots relating the consumer sentiment index to the growth rate of real consumption expenditures, using quarterly data since 1965. Generally speaking, does consumption grow more quickly when consumers are more optimistic? Do the same exercise for consumer sentiment and real consumption expenditures on durable goods since 1999.2. The Wilshire 5000 stock market index measures the total dollar value of a large set of stocks traded on the stock market. The real value of the Wilshire 5000 index, which measures the real value of the wealth represented by that set of stocks, is obtained by dividing the index by a measure of the price level, such as the CPI. (To obtain monthly data on the Wilshire 5000, use WILL5000PR in the FRED database.)
Using monthly data for the period since 1971, graph the real value of the Wilshire 5000 stock market index. What striking difference do you see in comparing the values in the 1970s with the values in the rest of the period? According to the theory, what effect should the behavior of stock market wealth during the 1970s have had on the household saving rate during that period, relative to the 1980s and 1990s? Plot net private saving of households and institutions as a percentage of GDP since 1960. Would you say that the prediction is borne out? Discuss. How did the stock market change during the financial crisis in 2008 and 2009, and what happened to the saving rate in response?
3. This problem asks you to calculate the actual (as opposed to the expected) real after-tax interest rate using annual data from 1961 to the present. The formula for the actual real after-tax interest rate is (1 — t) i — π, where i is the nominal interest rate, t is the tax rate, and π is the inflation rate.
Use the average for each year of the three-month Treasury bill interest rate for the nominal interest rate i and measure annual inflation π by the CPI inflation rate from December to December.
Take the tax rate t to be the ratio of total (Federal plus state and local) government receipts to nominal GDP in the fourth quarter of each year. In what periods was the real after-tax interest rate positive? In what periods was it negative?4. Using quarterly data from 1947 to the present, graph residential fixed investment relative to GDP.
a. Compare the graph of residential fixed investment relative to GDP to a graph of the civilian unemployment rate. What happens to residential investment during recessions? In this respect, is residential investment similar to or different from other types of investment?
b. During the two decades after World War II, there was an upsurge in population growth and household formation known as the “baby boom." The baby boom was followed by a “baby bust" during which population growth slowed. How are these demographic trends connected to the behavior of residential investment relative to GDP shown in your graph?
5. The chapter claims that interest rates tend to move together. Using monthly data since 1975, graph the interest rate on three-month Treasury bills, the yield on high-grade corporate bonds, the 30-year conventional mortgage rate, the prime rate charged by banks, and the yield on ten-year Treasury bonds. Which interest rates tend to be highest? Lowest? Explain. Which interest rates tend to move together? Explain.
6. Graph real private nonresidential fixed investment in (a) structures, (b) equipment, and (c) intellectual property products since 1999. How has the relative emphasis on the three types of investment changed? Can you think of an explanation?