ARTICLE: http://www.nytimes.com/2015/09/13/business/economy/the-feds-policy-mechanics-retool-for-a-rise-in-interest-rates.html
Part 1: Article from the New York Times
Based on your reading of the attached article, please answer the following
- What are some of the main concerns facing the Federal Reserve as it decides on whether to raise interest rates?
- What are the tools that the Federal Reserve has traditionally used to conduct monetary policy?
- Identify two new, unconventional strategies used the Fed to conduct monetary policy in the most recent crisis that are discussed in the article.
- Using the money market and AD-SRAS-LRAS models, show how an open market operation in which the Fed sells bonds would affect the economy. How do inflation and unemployment change in the short-run?
Part 2: Identifying changes in the Federal Funds Rate
You will be using data from two sources to examine how the key interest rate set by the Federal Reserve, the Federal Funds Rate, has changed.
The National Bureau of Economic Research dates expansions and recessions in the U.S. economy. The data is available here:
http://www.nber.org/cycles.html
The dates are understood as follows: the most recent recession began in December 2007 (the peak of the expansion), and ended in June 2009 (the trough of the recession).
To understand how the Federal Reserve has changed its target interest rate, you will refer to the data here:
https://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html
If there are no dates, then the target FFR was not changed. For example, on June 29, 2006, the FFR was changed to 5.25%. It remained there until September 18, 2007 (when it was decreased to 4.75%).
1. Since 1990, how many recessions have occurred in the United States? What are the dates and the corresponding lengths in quarters?
- For the recession periods you have identified, examine how the target Federal Funds rate changed 6 months before and after the recession. For example, what were the changes in the FFR 6 months before December 2007 and 6 months after June 2009?
- Do you observe a pattern in change in the FFR targets of the Federal Reserve in the most recession, compared to earlier recessions?
