Question NOVA SOUTHEASTERN UNIVERSITY ECN 5050 – Economic Thinking

04 Jun Question NOVA SOUTHEASTERN UNIVERSITY ECN 5050 – Economic Thinking

Question
NOVA SOUTHEASTERN UNIVERSITY

ECN 5050 – Economic Thinking

Data Exercise 2

This exercise is designed to assess your ability to manipulate and analyze data in

accordance with Course Competency (CC) #5: Locate, analyze, and interpret

macroeconomic data.

Instructions:

• Put all of your work in one file;

• Write your name in the header;

• We need to see your work in Excel (i.e., formulas). Do not copy and paste numbers from

your original worksheet to a new worksheet. When submitting, make sure that the cells

in your worksheet show formulas.

• After you finish the assignment, name your file LastnameDE2.xls (or .xlsx, depending on

the version of Excel). Note that you do not have to write the .xls suffix by yourself –

Excel will do it automatically, and

• Upload it to the Assignment Section of the Blackboard.

Background:

Over the business cycle, many macroeconomic data series move together. The investment

component of GDP is most volatile, and government expenditures typically increase during

recessions to offset declines in private-sector expenditures. However, each business cycle is

caused by different reasons, and therefore, each business cycle is different.

Assignment:

You work as an analyst at an investment bank. The CEO of the firm just came back from the

Annual Policy Symposium at Jackson Hole. He tells you that he listened to the presentation by

Professor Robert Hall, who chairs the National Bureau of Economic Research’s Recession

Dating Committee. The CEO hands you the paper by Professor Hall, “Why Does the Economy

Fall to Pieces after a Financial Crisis?” and wants you to update the figures 1 and 4 in the paper.

Specifically, figure 1 plots the change of components of GDP from the second quarter (AprilJune)

of 2008 on, and figure 4 plots the yield spread between 20-year Treasury bond and Baa

corporate bond from January 2007 on.

a. You have to update the figures 1 and 4 using the most recent data available. Use Excel and

create graphs similar to the figures 1 and 4 using data up to the most recent period. All data

series are available at St. Louis Federal Reserve Bank’s FRED®

(http://research.stlouisfed.org/fred2/). Download appropriate series in Excel.

• To download data from FRED®, you have to register.

2

• You have to use “real” series for all GDP-related data. They are available quarterly.

• You need the following quarterly series for figure 1:

Consumption:

Real Personal Consumption Expenditures: Nondurable Goods

Real Personal Consumption Expenditures: Services

Investment:

Real Personal Consumption Expenditures: Durable Goods

Real Gross Private Domestic Investment, 3 Decimal

Government:

Real Government Consumption Expenditures & Gross Investment, 3

Decimal

Net Exports:

Real Net Exports of Goods & Services, 3 Decimal

• Use the monthly series for the interest rates (figure 4):

20-Year Treasury Constant Maturity Rate

Moody’s Seasoned Baa Corporate Bond Yield

• Since the oldest data you need for this exercise is from January 2007. You may want to

delete data prior to January 2007 to simplify your worksheet

• You need to combine worksheets for figure 1 and figure 4 into one file. To combine two

files into one, use “Home-Format (Cells)-Move or Copy Sheet” and move one sheet to

the other “book.”

Journal of Economic Perspectives—Volume 24, Number 4—Fall 2010—Pages 3–20

The worst fi e worst fi nancial crisis in the history of the United States and many other nancial crisis in the history of the United States and many other

countries started in 1929. The Great Depression followed. The second-worst ountries started in 1929. The Great Depression followed. The second-worst

struck in the fall of 2008 and the Great Recession followed. Commentators truck in the fall of 2008 and the Great Recession followed. Commentators

have dwelt endlessly on the causes of these and other deep fi ave dwelt endlessly on the causes of these and other deep fi nancial collapses. nancial collapses.

Less conspicuous has been the macroeconomists’ concern about why output and ess conspicuous has been the macroeconomists’ concern about why output and

employment collapse after a fi mployment collapse after a fi nancial crisis and remain at low levels for several or nancial crisis and remain at low levels for several or

many years after the crisis. This article pursues modern answers to that question. It any years after the crisis. This article pursues modern answers to that question. It

focuses on events in the United States since 2008. ocuses on events in the United States since 2008.

Existing macroeconomic models account successfully for the immediate effects xisting macroeconomic models account successfully for the immediate effects

of a fi nancial crisis on output and employment. I will lay out a simple macro model nancial crisis on output and employment. I will lay out a simple macro model

that captures the most important features of modern models and show that realistic hat captures the most important features of modern models and show that realistic

increases in fi ncreases in fi nancial frictions that occurred in the crisis of late 2008 will generate nancial frictions that occurred in the crisis of late 2008 will generate

declines in real GDP and employment of the magnitude that occurred. But this eclines in real GDP and employment of the magnitude that occurred. But this

model cannot explain why GDP and employment failed to recover once the fi odel cannot explain why GDP and employment failed to recover once the fi nancial nancial

crisis subsided—the model implies a recovery as soon as fi risis subsided—the model implies a recovery as soon as fi nancial frictions return to nancial frictions return to

normal. At the end of the article I will mention the ideas that are in play to explain ormal. At the end of the article I will mention the ideas that are in play to explain

the persistent adverse effects of temporary crises, but these ideas have not made their he persistent adverse effects of temporary crises, but these ideas have not made their

way into the mainstream model. ay into the mainstream model.

This article cites only a few of the many important contributions to the main- his article cites only a few of the many important contributions to the mainstream

model. My paper Hall (2009) contains many citations and the forthcoming tream model. My paper Hall (2009) contains many citations and the forthcoming

new volume of the ew volume of the Handbook of Monetary Economics discusses the literature fully. discusses the literature fully.

Figure 1 shows what happened to four components of real GDP after the second igure 1 shows what happened to four components of real GDP after the second

quarter of 2008. Three components were only slightly affected. Net exports and uarter of 2008. Three components were only slightly affected. Net exports and

Why Does the Economy Fall to Pieces

after a Financial Crisis?

? Robert E. Hall is the Robert and Carole McNeil Joint Hoover Senior Fellow and Professor of obert E. Hall is the Robert and Carole McNeil Joint Hoover Senior Fellow and Professor of

Economics, Stanford University, Stanford, California. His e-mail address is conomics, Stanford University, Stanford, California. His e-mail address [email protected] [email protected]?.