F02_MISH1438_06_IM_IntroCases

F02_MISH1438_06_IM_IntroCases - Solutions to Integrative...

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Solutions to Integrative Cases Part I Mini-Case Solution 1. Based on monthly data, from January 1960 to December 1999: Calculate the inflation rate as π t = 1200 × ( P t + 1 / P t - 1) and graph the series. The average t for each decade is (approximately): 2.5, 6.5, 5.5, and 3.0. The standard deviations are (approximately): 1.5, 2.7, 3.5, and 1.1. The worst decade was the 1970’s and the best the 1990’s. 2. Based on annual data, calculate the real growth rate as: g t = 100 × (GDP t +1 /GDP t - 1). Graph the real growth rate. The average real GDP growth rate for each decade is (approximately): 4.4, 3.2, 3.0, and 3.0. The standard deviations are (approximately): 2.1, 2.8, 2.6, and 1.5. The 1980s and 1990s had the lowest real growth. The 1960’s had the highest. The 1990’s had the most stable growth. 3. Based on monthly data on M 1 , from January 1960 to December 1999: Calculate the money growth rate as μ t = 1200 × ( M t +1 / M t - 1) and graph the series. The 1990’s had the slowest money growth. The 1980’s had the highest. The 1970’s had the lowest money growth volatility. The 1990’s had the highest. Yes. Part II Mini-Case Solution 1. Using monthly data, from January 1955 to February 2002, on the federal funds rate, the one-year Treasury bill rate, a 10-year interest rate, and interest rates on AAA and BAA corporate bonds, plot the series. The series move together over time: The statistics are (with the series in the same order as in the graph on page ix): Mean Std Dev Minimum Maximum FF 6.08194 3.29450 0.63000 19.10000 1-Year 6.14885 2.85532 1.23000 16.72000 10-Year 6.85830 2.66268 2.61000 15.32000 AAA 7.57369 2.72090 2.93000 15.49000 BAA 8.52769 3.05805 3.45000 17.18000
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xvi Mishkin/Eakins • Financial Markets and Institutions, Sixth Edition 2. The correlation matrix is: FF 1-Year 10-Year AAA BAA FF 1 1-Year 0.97 1 10-Year 0.87 0.93 1 AAA 0.84 0.89 0.98 1 BAA 0.83 0.88 0.98 0.99 1 The strongest correlation is between the interest rates on AAA and BAA bonds. The weakest is between the fed funds rate and the interest rate on BAA bonds. Yes, the correlation patterns identified here manifest in the graphical representation of the series. The correlation matrix for the 1960’s is: FF 1-Year 10-Year AAA BAA FF 1 1-Year 0.95 1 10-Year 0.92 0.97 1 AAA 0.89 0.94 0.98 1 BAA 0.86 0.90 0.96 0.98 1 For the 1970’s is: FF 1-Year 10-Year AAA BAA FF 1 1-Year 0.91 1 10-Year 0.63 0.86 1 AAA 0.58 0.78 0.94 1 BAA 0.37 0.57 0.82 0.93 1 For the 1980’s is: FF 1-Year 10-Year AAA BAA FF 1 1-Year 0.95 1 10-Year 0.80 0.92 1 AAA 0.77 0.89 0.99 1 BAA 0.76 0.87 0.97 0.98 1 For the 1990’s is: FF 1-Year 10-Year AAA BAA FF 1 1-Year 0.94 1 10-Year 0.52 0.67 1 AAA 0.47 0.59 0.98 1 BAA 0.48 0.57 0.95 0.98 1
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Solutions to Integrative Cases xvii 3. Time series plots of the spread between the interest rates on each of AAA and BAA corporate bonds and the Treasury bill rate: -4 -3 -2 -1 0 1 2 3 4 5
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This note was uploaded on 10/17/2011 for the course ECON 317 taught by Professor Guidry during the Spring '11 term at Nicholls State.

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F02_MISH1438_06_IM_IntroCases - Solutions to Integrative...

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