Question
3. Go to https://fred.stlouisfed.org/ and click on the Category link below the search box. Find the heading Money, Banking, & Finance and click on Monetary
3. Go tohttps://fred.stlouisfed.org/ and click on the "Category" link below the search box. Find the heading "Money, Banking, & Finance" and click on "Monetary Data", then "Reserves", and then "Reserves of Depository Institutions: Total". Answer the following:
a. In which year did bank reserves show an accelerated increase? What was special about that year?
b. We described the behavior of quantitative easing (QE) in class. Looking closely at the graph, can you identify the periods of QE? (HINT: Look at the years in which reserves show an almost vertical line.)
c. What is it called when the Fed maintains plentiful reserves the banking system?
4. a. What is the IORB rate? What is the federal funds rate?
b. Describe how the Federal Reserve can control the federal funds rate through its administration of the IORB rate.
5. Answer the following:
a. Go tohttps://fred.stlouisfed.org/ and click on the "Categories" link under the search box. Click on "Money, Banking, & Finance" and then "Interest Rates". Click on "FRB Rates" and then on the series "Federal Funds Effective Rate".
Change the graph range to 5Y and describe the pattern of the federal funds rate over this period.
b. Go back to the "Interest Rates" page and click on "Prime Bank Loan Rate" and then on the series "Bank Prime Loan Rate".
This is the interest rate that banks use as a base rate for their loans. In other words, an increase in the prime rate will typically result in an increase in all bank lending rates, including business loans, variable rate credit cards, auto loans, etc. It can be considered a short-term rate.
Change the graph range to 5Y and describe the pattern of the prime rate rate over this period. How does it compare to the series from part a?
c. Go back to the "Interest Rates" page and click on "Mortgage Rates". Look at the series "30-Year Fixed Rate Average for the United States".
This is the interest rate offered on financing a house for 30 years. It is one of the major long-term interest rates in the US economy.
Change the graph range to 5Y and describe the pattern of the 30-year mortgage rate over this period. How does it compare to the series from part a?
d. Using your answers to parts a - c, do interest rate changes by the Fed (as indicated by your answer to part a) seem to influence short-term and long-term market interest rates in the same way? Explain.
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