FINA 3330 HMWK – Rosenblum Sarah DeVito – February 20, 2008 A) Bernanke, Haubrich, and Wu address the predictions that might be made in looking at the current yield curve, especially in relation to the possibility of recession. Historically, the current yield curve would suggest a strong possibility of recession. However, Bernanke, Haubrich, and Wu remain skeptical, as do many authorities in the economic field. Bernanke asserts there could be two reasons for the flattening yield curve that would warrant two opposite monetary policy actions. First, he provides the possibility that there has been a change in demand for long-term securities due to the “Great Moderation” and changes in management and accounting of pension funds. The second possibility that he mentions is that long-term rates represent the market’s prediction for economic slowdown. Due to the relatively low (historically) level of interest rates, possible changes in demand for long-term bonds, and other empirical indicators suggesting
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