Macro I - S3 (2016)Ejercicio Inglés
Vista previa del texto
Macro I – Seminar 3
1.1 To calculate the expected interest rate we can’t use the Yield curve itself, we need different maturities of the bonds.
Chart with different interest rates along the time Comparison about the real and expected interest for the bonds along the time Ex-post Surprise 1.2 Yes they did, if you look at the reality, you can see that everything happens a bit before that the ECB acts, in 2002 the ECB is constant, but they expect the ECB will lower it in 2003 so it kept going down. In 2006 the ECB increased the rate, but in the bonds market it already happened in 2005, in 2007 and 2008 they kept it constant, and they lowered in 2009, but in real market, it decreased in 2007 and 2008, waiting for that 2009 decrease in the interest rate. In 2010 it started to increase, and again, the ECB increased it in 2011 and in 2012 they decreased it, something that actually started to happen in the markets in 2011. It could be said that the markets react one year before the ECB acts.
1.3 As we can see in the graphs, in the short run, the IS shifts to the left as the interest rates decreases, this makes the AD turn to the left too. So Y decreases In the medium run, AS adjusts to the natural level of output, so shifts to the right. This makes P decrease so that M/P increases, and LM turns to the right too. In the end, the level of output returns to its natural level.
The yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates.
a) What we can see is that there was an important growth from 2010 on, until 2012, when the yield curve goes back to values similar to the 2009 ones. Between 2014 and the middle of 2015 the yield curve experiences a little growth, but it is not comparible with the one in 2012. These values are high because the risck premium is added to the interest as we are talking about a country that might get into default and do not return the nominal interest rate.
i10t=i + RP b) December 2014 December 2011 December 2008 c) In 2008 the market is optimistic about the situation as the yield curve slope is positive, but when we arrive to the 2011 the market is very pessimistic as the slope decresases a lot becuase there was a high risk of deffault. Finally, it gets worse in 2014.
a)FV = 100$ Pnt = FV /(i + int)^n Yield value: i1t = (100/ 96,15) -1 = 0,04 i2t = -1 = 0,05 i5t = -1 = 0,055 i10t = -1 = 0,06 The yield curve has a positive slope, what means that expected interests in the future are higher than actual interest rates.
b) As the LM cannot move to adjust the interest rate, the IS will move up, with an expansionary fiscal policy that will increase the interest rate. We can also see how in the yield curve the expected interest rate is goint to grow in the next 10 years.
c)Yield value: i1t = (100/93.02) -1 = 0,075 7.5% i2t = -1 = 0.07 7% i5t = -1 = 0.065 6,5% i10t = -1 = 0.059 6% The yield curve is downward sloping, so is the opposite as before, the future expected interest rates in short run are smaller thant the interests today in the short run.
d) We start with an interest rate of 4%, but we can see that future expected interest rates will be better, so the IS goes up. After 10 years wr arribe at the unterest equilibrium of 6%.(Y=YN, im/r=6%) In June we have yield curve with a negative slope. The expectatives go down. We start form the expectatives of n=10 from January that is 6%.It is expected that the value of the yield would be higher (7,5%), But the expectations reflex a worse situation of the economy, so IS goes to the left and it arrives at his natural level of output.