Posts (page 2)

The yield curve and the current bond market conundrum: background readings:

Most recent Federal Reserve Press Release (October 25, 2006): <http://www.federalreserve.gov/boarddocs/press/monetary/2006/20061025/>: The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent...

SmartMoney.com's Living Yield Curve is excellent: <http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve&nav=dropTab>: PEOPLE TALK ABOUT interest rates going up and going down as if all rates moved together. The rates on bonds of different maturities behave quite independently of each other, with short-term rates and long-term rates often moving in opposite directions.... The yield curve is what economists use to capture the overall movement of interest rates.... Plot today's yields for various maturities of U.S. Treasury bills and bonds on a graph and you've got today's curve... the line begins on the left with the shortest maturity -- three-month T-bills -- and ends on the right with the longest -- 30-year Treasury Bonds.

Jim Hamilton of UCSD is a little less worried about the "inverted yield curve" than he used to be: <http://www.econbrowser.com/archives/2006/11/the_yield_curve_2.html>: To the extent that the decline in the yield spread does represent a fall in the term premium, and if indeed a fall in the term premium itself does not signal an economic slowdown, it means that the current negative yield spread does not have quite as bearish a connotation as the historical correlation between the yield spread and output might otherwise suggest.... [R]ecent week-to-week moves in the yield spread... have been dominated by news about the real economic outlook, with prospects for slower economic growth translating into lower expectations for future short rates and a lower yield spread. Insofar as that's the case, the recent pitch into negative territory must still be regarded as worrisome. But just how worrisome? Slower than normal growth still looks to me like a safe bet. On the other hand, the negative growth characteristic of a recession is a little less likely than I regarded it before studying the latest research...

Treasurys rally after tame PPI, retail sales - MarketWatch: <http://www.marketwatch.com/News/Story/Story.aspx?column=bond+report&siteid=mktw&dist=10markets>: The benchmark 10-year Treasury bond was up 13/32 at 100-16/32, while its yield sank to 4.5620%.... The 2-year note was up 3/32 at 100 9/32, yielding 4.718%, keeping the yield curve inverted. The 30-year bond gained 24/32 to 97-14/32, yielding 4.653%, an 8-month low...

Nov 16: Is a financial panic in America's future? (Problem set 8 out)

Nov 21: Problems of the European macroeconomy

Nov 28: Looking back at the Great Depression (Problem set 9 out)

Nov 30: The long-run: must the U.S. balance its budget?

Dec 5: The current situation: will we escape recession for a while longer?

Dec 7: Review

Background Readings on Topics We're Not Covering Right Now:

DeLong/Olney, chapters 13 (monetary policy) and 14 (fiscal policy)

DeLong/Olney, chapter 15 (International Monetary Systems)

C. Fred Bergsten (2006), "Clash of the Titans," Newsweek http://www.iie.com/publications/papers/paper.cfm?ResearchID=620

Jeffrey Williamson (1985), "The Historical Content of the Labor Surplus Model" http://www.jstor.org/view/00987921/di961996/96p0248f/0

Readings on Financial Crises:

Ray Fair:

"Econometrics and Presidential Elections," The Journal of Economic Perspectives, Summer 1996, 89-102: http://fairmodel.econ.yale.edu/rayfair/pdf/1996B200.PDF

"The Effect of Economic Events on Votes for President: 2004 Update": http://fairmodel.econ.yale.edu/RAYFAIR/PDF/2006CHTM.HTM

Due Thursday, November 16:

Problem Set 7: http://delong.typepad.com/print/p_set_7.pdf

For those of you that don't know, there are a couple political futures markets widely used/cited by economists.  Always interesting to watch around election time.  Are these markets efficient?

• Iowa Electronic Markets

• Tradesports.com
  

Notes for 11/3 & 11/6 sections.  Will be updated for 11/8 sections.

• http://socrates.berkeley.edu/~jwr/Notes_Section_MP.pdf

Alan Blinder, "Central-Bank Credibility: Why Do We Care? How Do We Build It?," American Economic Review, 2000, v90(5,Dec), 1421-1431 <http://papers.nber.org/papers/w7161>

Kenneth Rogoff, "Reputational Constratints on Monetary Policy," American Economic Review, vol. 80, no. 1, pp 21-36, March 1990 <http://www.nber.org/papers/w1986>.