writing assignment

timer Asked: Feb 8th, 2019
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Question Description

Read the above article about the "yield curve" and discuss the following. The article mentions that the yield curve often flattens when the Fed raises short-term interest rates. Does that match what we know about liquidity premium theory? Assuming that the yield curve does flatten when the Fed raises short-term interest rates, should the Fed never raise short-term interest rates? What are the pros and cons of that policy?

Your response must be 400 to 600 words. File must be uploaded as an MS Word document or pdf file by 5 PM on Friday February 8. Please feel free to use information from class or other sources (Google searches and reading information online, reading other articles, etc.). Just do not copy someone else's writing or ideas verbatim. That is plagiarism. I reserve the right to run written assignments through plagiarism software (e.g. turnitin.com).

Written Assignment Rubric

Length and ReadabilityIs the submission in the 400-600 words range? Is the writing understandable?


Full Credit


Partial Credit


No Credit


Course ConceptDoes the submission accurately use a concept from ECN 135?


Full Credit


Partial Credit


No Credit


Applied KnowledgeDoes the submission apply knowledge from ECN 135 to answer the questions about the article? Does the submission make a coherent argument or provide a coherent answer to the questions asked using information from the article and the course?


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Partial Credit


No Credit


Total 10.0

Unformatted Attachment Preview

U.S. News --- THE OUTLOOK: Fed Debates Signal From Yield Curve Timiraos, Nick . Wall Street Journal , Eastern edition; New York, N.Y. [New York, N.Y]09 July 2018: A.2. ProQuest document link FULL TEXT Atlanta Fed President Raphael Bostic and some of his colleagues are laying the groundwork to slow down the Federal Reserve's interest-rate increases if they foresee a bond-market development that has traditionally been a harbinger of recession. At issue is the narrowing spread between short- and longer-term Treasury yields, a difference known as the yield curve. The gap typically shrinks when the Fed raises short-term rates. But when short-term Treasury yields rise higher than longer-term yields, a so-called inverted yield curve, a recession has almost always followed within a year or two. Mr. Bostic's concerns are taking on new urgency because the spread, which compares yields on two- and 10-year Treasurys, has fallen to levels last seen in 2007. It dropped below 0.3 percentage point last week, down from 0.5 percentage point three months ago and 1 percentage point one year earlier. "Any inversion of any sort is a surefire sign of a recession," said Mr. Bostic in an interview last month. "I want us to avoid being in a situation where" the curve inverts. Mr. Bostic, an economist, took office one year ago and is a voting member of the Fed's rate-setting committee this year. The group has voted to raise rates twice so far this year, both times unanimously, to keep the expanding economy on an even keel. While the Fed's policy shouldn't focus explicitly on "manipulating the yield curve," Mr. Bostic said, an appropriate approach "will be consistent with there not being an inversion." His unease is shared by others, including Dallas Fed President Robert Kaplan, St. Louis Fed President James Bullard and Minneapolis Fed President Neel Kashkari. The degree of importance others place on the signal could determine whether the Fed raises rates once or twice more this year. Fed Chairman Jerome Powell has said the yield curve is important to watch, but he said in March the flatter curve didn't appear to be a recession warning. Inverted yield curves have preceded recessions in part because "inflation was allowed to get out of control, and the Fed had to tighten, and that put the economy into recession," he said at a news conference. "It's really not the PDF GENERATED BY SEARCH.PROQUEST.COM Page 1 of 3 situation we're in now." Mr. Powell flagged a separate concern: A narrower spread can complicate bank profitability and raise financial stability risks. Banks pay short-term rates on deposits and earn long-term rates on loans. The prospect that banks might engage in risky behavior as the spread flattens is an issue "that we'll be watching carefully," he said. Minutes of the Fed's June meeting released last week showed the debate heated up. The discussion revealed a willingness on the part of some officials and staff economists to tamp down concerns about the yield spread. Some officials have said the spread isn't as reliable an indicator of future growth because bond purchases by the Fed, the European Central Bank and the Bank of Japan in recent years -- designed to spur economic growth by forcing investors to buy stocks and other riskier assets -- have depressed long-term bond yields. The so-called term premium, or the extra compensation an investor demands for owning a 10-year bond rather than a shorter-dated instrument, has been slightly negative in recent years, according to one Fed estimate. A lower term premium "may temper somewhat the conclusions that we can draw" from the historical relationship between an inverted yield curve and recession, said Fed governor Lael Brainard in a May speech. Her willingness to consider alternate explanations is noteworthy because last year she was one of the leading voices for caution in raising rates, citing stubbornly soft inflation. Those concerns faded this year with inflation returning to the Fed's 2% target. Research published last month by Fed staff economists said a more reliable gauge of market-derived recession probabilities can be found by comparing the difference between the yields on short-term Treasury bills and the yield implied by futures markets for the same bills some six quarters later. This measure hasn't flattened in recent years and implied a low probability of a recession. Boston Fed President Eric Rosengren said in an interview last month he is paying more attention right now to such measures. The debate over how much importance to place on an inverted yield curve could grow more fraught in the months ahead if U.S. economic growth remains strong and global growth falters. That could spur a flight to safe assets such as long-term Treasurys, pushing long-term yields below short-term yields. Credit: By Nick Timiraos DETAILS Subject: Treasuries; Recessions; Economic growth; Yield; Presidents; Economic conditions; Short term Location: United States--US Atlanta Georgia People: Bullard, James Bostic, Raphael Rosengren, Eric Kashkari, Neel Company / organization: Name: Bank of Japan; NAICS: 521110; Name: European Central Bank; NAICS: 521110 PDF GENERATED BY SEARCH.PROQUEST.COM Page 2 of 3 Publication title: Wall Street Journal, Eastern edition; New York, N.Y. Pages: A.2 Publication year: 2018 Publication date: Jul 9, 2018 Publisher: Dow Jones &Company Inc Place of publication: New York, N.Y. Country of publication: United States, New York, N.Y. Publication subject: Business And Economics--Banking And Finance ISSN: 00999660 Source type: Newspapers Language of publication: English Document type: News ProQuest document ID: 2066306242 Document URL: https://search.proquest.com/docview/2066306242?accountid=14505 Copyright: (c) 2018 Dow Jones &Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission. Last updated: 2018-07-09 Database: US Major Dailies LINKS UCD-eLinks Database copyright  2018 ProQuest LLC. All rights reserved. Terms and Conditions Contact ProQuest PDF GENERATED BY SEARCH.PROQUEST.COM Page 3 of 3 ...
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School: UC Berkeley

hey bro,...

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