Go to the St. Louis Federal Reserve FRED database, and find data on net worth of households (TNWBSHNO) and the net percentage of domestic banks tightening standards for prime mortgage loans (DRTSPM). Adjust the units setting for the net worth indicator to "Percent Change from Year Ago," and download the data into a spreadsheet.
a. Calculate the average, over the most recent four quarters and the four quarters prior to that, for the bank standards indicator and the "percent change in net worth" indicator. Do these averages behave as you would expect?
b. Use the Data Analysis tool in Excel to calculate the correlation coefficient for the two data series from 2007:Q3 to the most recent quarter of data available. What can you conclude about the relationship between the net worth of households and bank mortgage lending standards? Is this result consistent with efforts to reduce asymmetric information?