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ECON 330 HW Set 5

ECON 330 HW Set 5 - 4.36 2.25 Less Feb 4.4 2.5 Less March...

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Jaclynn Hilligoss ECON 330 Section 0101 Homework #5 Target FFR (Implied) = Real FFR + Inflation Rate + 0.5(Inflation Gap) + 0.5(Output Gap) Inflation Gap = Real Inflation Rate - Target inflation rate 1 Month Real FFR + Inflation Rate + (0.5 * Inflation Gap) + (0.5 * Output Gap) = Implied Target FFR 2004 June 2 1.85 0.5 -0.15 0.5 -0.5 3.53 July 2 1.74 0.5 -0.26 0.5 -0.4 3.41 Aug 2 1.74 0.5 -0.26 0.5 -0.3 3.46 Sept 2 1.99 0.5 -0.01 0.5 -0.3 3.84 Oct 2 1.99 0.5 -0.01 0.5 -0.3 3.84 Nov 2 2.19 0.5 0.19 0.5 -0.2 4.19 Dec 2 2.19 0.5 0.19 0.5 -0.2 4.19 2005 Jan 2 2.24 0.5 0.24 0.5 0 4.36 Feb 2 2.33 0.5 0.33 0.5 -0.2 4.4 March 2 2.33 0.5 0.33 0.5 0.1 4.55 April 2 2.14 0.5 0.14 0.5 0.2 4.31 May 2 2.14 0.5 0.14 0.5 0.2 4.31 June 2 2.01 0.5 0.01 0.5 0.3 4.17 July 2 2.11 0.5 0.11 0.5 0.3 4.32 Aug 2 2.11 0.5 0.11 0.5 0.4 4.37 Sept 2 1.95 0.5 -0.05 0.5 0.2 4.03 Oct 2 2.05 0.5 0.05 0.5 0.5 4.33 Nov 2 2.1 0.5 0.1 0.5 0.4 4.35 Dec 2 2.14 0.5 0.14 0.5 0.5 4.46 2006 Jan 2 2.09 0.5 0.09 0.5 0.7 4.49 Feb 2 2.04 0.5 0.04 0.5 0.6 4.36 March 2 2.08 0.5 0.08 0.5 0.7 4.47 2 Month Implied Target FFR Actual Target FFR Less/More
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2004 June 3.53 1 Less July 3.41 1.25 Less Aug 3.46 1.5 Less Sept 3.84 1.5 Less Oct 3.84 1.75 Less Nov 4.19 2 Less Dec 4.19 2.25 Less 2005 Jan
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Unformatted text preview: 4.36 2.25 Less Feb 4.4 2.5 Less March 4.55 2.75 Less April 4.31 2.75 Less May 4.31 3 Less June 4.17 3 Less July 4.32 3.25 Less Aug 4.37 3.5 Less Sept 4.03 3.5 Less Oct 4.33 3.75 Less Nov 4.35 4 Less Dec 4.46 4.25 Less 2006 Jan 4.49 4.25 Less Feb 4.36 4.5 More March 4.47 4.5 More 3 Yes, given the data in April 2006 I would expect the Fed to stop raising the target FFR soon. Currently, the actual FFR is more than the implied FFR so they need to lower the acutal rate or keep it constant in order to meet their target and stay in neutrality. The Fed wants to keep the actual and target rates close to the same. J u n J ul y A u g S e pt O ct N ov D e c J a n F e b M ar c A pr il M ay J u n J ul y A u g S e pt O ct N ov D e c J a n F e b M ar c 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Implied vs. Real Column C Column D Date Rate (%)...
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