325_Supplement4

325_Supplement4 - Department of Economics University of...

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Intermediate Macroeconomic Analysis Spring 2011 1 Department of Economics University of Maryland Economics 325 Intermediate Macroeconomic Analysis Supplement 4 Professor Sanjay Chugh Spring 2011 The following article, which appeared in the Wall Street Journal on February 7, 2011, discusses the uptick in the past week of nominal interest rates, which comes on the heels of a gradual rise since the Fall of 2010. One of the interpretations offered by the article is that the uptick reflects market participants’ expectations of slightly higher inflation in the future than previous expectations. Fully studying this mechanism requires jointly analyzing bond markets and money markets, which we will do in Chapter 14. The most basic building block towards studying these and (many) other issues in macroeconomics is dynamic analysis; Chapters 3 and 4, the baseline consumption-savings framework builds this foundation.
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Intermediate Macroeconomic Analysis Spring 2011 2 ABREAST OF THE MARKET FEBRUARY 7, 2011 Bond Market Flashes Inflation Warning Jump in U.S. Treasury yields signals market fear that Fed is behind the curve on prices By MARK GONGLOFF The U.S. bond market has begun sending a message that inflation risks are rising and the Federal Reserve may be too slow to act, potentially marking a significant turning point in the economic recovery. In the past week, Treasury-bond yields have jumped to their highest levels since last spring. Yields on 10-year Treasurys surpassed 3.5% and 30-year yields broke through 4.7%, which makes some worry could mean rates will march even higher. Long-term rates have been gradually moving higher in response to an improving
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325_Supplement4 - Department of Economics University of...

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