Assignment: Macroeconomic Analysis

1 Data

1. For January 1981 to February 2016, use the data on unemployment, ináation and interest rates to plot these three lines. Unemployment and ináation can be plotted on the same graph, and the interest rate will be plotted on a separate graph.

2. Plot the GDP data for January 1981 to October 2015. Please note that the GDP data is quarterly, in contrast to the above series, which are monthly.

3. Using the recession dates from NBER (link given below), discuss how the unemployment, ináation and GDP numbers changed over 2 years before a recession, and for 2 years after a recession for the three most recent recession in the U.S. For each recession, make a separate table with the value of these variables. You can use the values at the start of every quarter (January, April, July and October).

4. Corresponding to these series for the three most recent recession, also tabulate how the interest rate changed, two years before the start of the recession, and 2 years after it ended (also use quarterly data here).

5. How was the recession of 2007-2009 di§erent from the previous two recessions in terms of these variables?

NBER recessions: http://www.nber.org/cycles.html

2 Analyzing the Crisis

Article: Over the Cliff: From the Subprime to the Global Financial Crisis by Frederic S. Mishkin.

1. Read the article on the crisis posted on Blackboard. Pgs. 49-58 provide you with some context of the crisis. For the purpose of the questions below, you will be speciÖcally focusing on Pgs. 58-70.

2. Suppose the economy was at equilibrium before the start of the recession. Show this using the IS-LM, Keynesian cross, AD-SRAS-LRAS and money market spaces.

3. Following the start of the recession, what happened to aggregate demand and output? (You should be able to see this from the plots in section 1 above). Show this shift in AD and IS curves.

4. If the Federal Reserve and government had not intervened, explain how the economy would have adjusted back to the long-run equilibrium.

5. How could monetary policy have ensured a faster return to the long-run equilibrium? Use the money market and LM curves to show this.

6. The Federal Reserve undertook several measures to deal with the crisis. Using the section on "Policy Responses to the Önancial crisis" (Pg. 58), discuss two unconventional policy measures undertaken.

7. Using the discussion of Öscal policy on pgs. 63-65, discuss two Öscal policy actions that were taken. Which components of planned expenditure would be a§ected by these Öscal actions?

8. In your view, why were unconventional monetary policy actions needed?

9. Using the interest rate data plotted above, has monetary policy returned to "normal" operations after the 2007 crisis, relative to the previous two recessions?

Attachment:- assignment_data.xls