lecture 17 - Economics 310 Money and Banking Lecture 17...

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Economics 310 Money and Banking Lecture 17 University of Michigan Fall 2010
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2 Lecture 1 Yield Curves Term to maturity Rate  (%) Rates expected to rise Interest risk premium
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3 Lecture 1 Yield Curves Term to maturity Rate  (%) Rates expected to be  steady Interest risk premium
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4 Lecture 1 Yield Curves Term to maturity Rate  (%) Rates expected to fall Interest risk premium
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5 Lecture 1 Yield Curves Term to maturity Rate  (%) Rates expected to fall  dramatically Interest risk premium
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6 Rate 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 1 10 100 1000
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7 Lecture 1 Inverted Yield Curves According to the expectations model, an inverted yield curve is associated with an expectation that interest rates will be lower in the future. What does this mean? Sign of impending recession? Expectations of lower interest rates as an expansionary response to recession
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8 Lecture 1 10-year and 1-year interest rates -5 0 5 10 15 20 J- 62 J- 63 J- 64 J- 65 J- 66 J- 67 J- 68 J- 69 J- 70 J- 71 J- 72 J- 73 J- 74 J- 75 J- 76 J- 77 J- 78 J- 79 J- 80 J- 81 J- 82 J- 83 J- 84 J- 85 J- 86 J- 87 J- 88 J- 89 J- 90 J- 91 J- 92 J- 93 J- 94 J- 95 J- 96 J- 97 J- 98 J- 99 J- 00 J- 01 J- 02 J- 03 J- 04 J- 05 J- 06 J- 07 Date Rate (%) 1 year 10 year Difference
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9 Lecture 1 Gross domestic product -10 -5 0 5 10 15 20 1962-I 1963-I 1964-I 1965-I 1966-I 1967-I 1968-I 1969-I 1972-I 1973-I 1976-I 1977-I 1978-I 1979-I 1980-I 1983-I 1984-I 1985-I 1986-I 1987-I 1988-I 1989-I 1990-I 1992-I 1993-I 1994-I 1995-I 1996-I 1997-I 1998-I 1999-I 2000-I 2001-I 2002-I 2003-I 2004-I 2005-I 2006-I 2007-I Quarter growth (%) 10-year and 1-year interest rates -5 0 5 10 15 20 J- 62 J- 63 J- 64 J- 65 J- 66 J- 67 J- 68 J- 69 J- 70 J- 72 J- 73 J- 76 J- 77 J- 78 J- 79 J- 80 J- 84 J- 85 J- 86 J- 87 J- 88 J- 89 J- 90 91 J- 92 J- 93 J- 94 J- 95 J- 96 J- 97 J- 98 J- 99 J- 00 J- 01 J- 03 J- 04 J- 05 J- 06 J- 07 Rate (%) 1 year 10 year Difference
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10 Lecture 1 Monetary Policy Fed influences the money supply via open market operations Interest rates tend to be the focus of
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