Econ110BW11 - FinalReviewSession

Econ110BW11 - FinalReviewSession - Macroeconomics B Econ...

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Macroeconomics B Econ 110B, Winter 2011 Prof. Giacomo Rondina Review Session for Final Exam
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Nominal and Real Interest Rates, and the IS LM Model ± Changes in Expected Inflation? 2 Expectations: the Basic Tools (Ch. 14) LM i Y IS ( π e A ) i A Y A r A π e A r A =i A - π e A
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Nominal and Real Interest Rates, and the IS LM Model ± Changes in Expected Inflation 3 Expectations: the Basic Tools (Ch. 14) i Y IS ( π e A ) LM i A Y A r A π e B π e B > π e A IS ( π e B ) Y B i B r B r B =i B - π e B
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Yield Curve and Economic Activity 4 Financial Markets and Expectations (Ch. 15)
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Pricing Zero Coupon Bonds 5 Financial Markets and Expectations (Ch. 15) () ( ) ( ) ( ) 1, 1 2, 11 1 3, 1 1 2 , 1 1 2 1 1 $ $ 1 $ $ $ $ 1 $ $ 1 1 1 ...... 1 t t t e tt t ee t nt e t t n V P i V P ii V P i V P i i + ++ + = + = = + = + + #
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Pricing Zero Coupon Bonds : Yields to Maturity 6 Financial Markets and Expectations (Ch. 15) () ( ) ( ) ( ) 1, 1 2, 2 11 1 2 3, 3 1 1 2 3 , 1 1 2 1 1 $ $ 1 $$ $ 1 $ 1 1 $ 1 1 1 ...... 1 1 t t t e tt t t ee t t nt n e t t n V P i VV P ii i P i i P i i i + ++ + = + == + + + + + + #
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Pricing Zero Coupon Bonds : Yields to Maturity 7 Financial Markets and Expectations (Ch. 15) () 1, 1 2, 2 2 3, 3 3 , $ $ 1 $ $ 1 $ $ 1 $ $ 1 t t t t t t nt n V P i V P i V P i V P i = + = + = + = + #
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Pricing Zero Coupon Bonds : Yields to Maturity 8 Financial Markets and Expectations (Ch. 15) () ( ) ( ) ( ) 11 22 1 1 1 2 2 2 3 3 33 1 1 1 1 2 3 3 3 1 1 2 1 1 $$ $ 1 1$ $1 1 1 1 $ 1 1 1 1 1 $ 1 1 1 1 . . . 1 1 $ 1 B tt B Be t t B t t e t t t B t t e e n n nt t t t t n n B VV Pi iP i i P i i i i P i i i i i P i + ++ + =→ = + = = + + + = = + + + + = = + + + # Yield Curve
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The Yield Curve and Economic Activity: t = 1/10/2008 9 3.37 3.24 3.21 3.04 2.71 2.74 3.16 3.49 3.91 4.47 4.44 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 1mo 3mo 6mo 1yr 2yr 3yr 5yr 7yr 10yr 20yr 30yr 1/10/2008 1 t i 2 t i 3 t i 5 t i 7 t i 10 t i 20 t i 30 t i Financial Markets and Expectations (Ch. 15)
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