What do you think about the non-traditional channels of

Question

A "rate cycle" is a period in monetary policy during the federal funds rate moves from its low point toward its high point, or vice versa, in response to business cycle conditions.?Go to the St. Louis Federal Reserve FRED database, and find data on:?- Federal Funds Rate (FEDFUNDS)

- Real business fixed investment (PNFIC96)?-
- Real residential investment (PRFI96), and?
- - Consumer Durable Expenditures (PCDGCC96)?For the Federal Funds Rate,
- change the frequency setting to "Quarterly". Download all the data into
- a spreadsheet.

Part 1. When did the last rate cycle begin and end?

When was the previous rate cycle? (Note: if a rate cycle is currently in progress, use the current period as the end). Is this rate cycle a contractionary or expansionary rate cycle? Describe and explain economic events behind these cycles. (Limit: 700 words)

Part 2. Calculate the percentage change in business fixed investment, residential (housing) investment, consumer durable expenditures over these two rate cycles. Based on your answer in Part 1 and your calculations, how effective was the traditional interest rate channel of monetary policy over these rate cycles? Fully explain reasons for these differences and if possible use models presented in this course such as the Aggregate Demand and Aggregate Supply model.

Part 3. What do you think about the non-traditional channels of monetary policy? Could you provide an example of a variable or set of variables that could show non-traditional channels of monetary policy? Describe and explain.

Answer 1

By considering the case statement provided in the assignment, please provide appropriate solutions. Question 1: When did the last rate cycle start and end? When was the preceding rate cycle? Is this rate cycle a contractionary or expansionary rate cycle? Illustrate and describe economic events behind such cycles. Question 2: Compute the percentage change in the business fixed investment, residential investment, consumer durable expenses over such two rate cycles. On the basis of your answer in above and your computations, how efficient was the traditional interest rate channel of monetary policy over such rate cycles? Completely describe reasons for such differences and if possible make use of models as the Aggregate Demand and Aggregate Supply model. Question 3: Illustrate what do you think regarding the non-traditional channels of monetary policy? Could you give an instance of a variable or set of variables which could illustrate non-traditional channels of monetary policy?