|Empirical Application 2
|Sources / references
|Description / paper instructions
All exercises can be answered in a single excel spreadsheet. Please make sure all questions 1-4 and letters are fully completed. Please put labels on graphs and please organize columns.
PORTLAND STATE UNIVERSITY
DEPARTMENT OF ECONOMICS
EC-312 Macroeconomic Theory
Empirical Application 2 – The US Recession of 2001
Due Jan 30
In 1992, the U.S. economy embarked on a long expansion. For the rest of the decade, GDP growth was positive and high. In 2000, however, the expansion came to an end. From the third quarter of 2000 to the fourth quarter of 2001, GDP growth was either positive and close to zero or negative.
Based on data available at the time, it was thought that growth was negative through the first three quarters of 2001. Based on revised data, it appears that growth was actually small but positive in the second quarter. (These data revisions happen often, so that what we see when we look back is not always what national income statisticians perceived at the time.) The NBER concluded that the U.S. economy had indeed had a recession in 2001, starting in March 2001 and ending in December 2001.
What triggered the recession was a sharp decline in investment demand. The cause was the end of what Alan Greenspan, the chairperson of the Fed at the time, had dubbed a period of “irrational exuberance”: During the second part of the 1990s, firms had been extremely optimistic about the future, and the rate of investment had been very high.
There is a consensus that the recession could have been much worse. However, it was met by a strong macroeconomic policy response, which limited the depth and the length of the recession.
To analyze this fact, follow these steps:
1- Go to the Federal Reserve Economic Data (FRED) https://fred.stlouisfed.org/. Download the series FGEXPND, FGRECPT, GPDI, GPDIC1, GDP, and GDPC1 since 1990. Notice that some of these quarterly series are in nominal terms and others in real terms. Compile a single spreadsheet with these series.
2- In this spreadsheet, normalize the real GDP and real Investment by setting 100 in 2000.Q2.
3- Go back to the FRED and download FEDFUNDS since 1990. Use the monthly version and keep this serie as a separate spreadsheet.
(change in real terms)
(change in real terms)