Interest Rates Exercise

Exercises on Interest Rates

Shown below are figures for three Treasury securities: One Year Treasury Bill, 10 Year Constant Matuirty Treasury Bond, and 30 Year Constant Maturity Treasury Bond. With the exception of the last period, all of the figures are for December of the particular year. The figures for T-Bond Rate 3 begin in March of 1977. The indexes for the first two bonds use 1970 as a base year. T-Bond Rate 3 uses 1977 as a base year. For our initial class discussion, make the following comparisons.

Compare the movements of the interest rate series over time. Do you discern any trend in the data ? Any cyclical pattern ?
Plot the interest rate series.Does this help you any in answering the first question?
How would you explain the relationship between the T-bill (short-term) rate and the other two series (long-term) rates?
Look at the years 1979 and 1980, how would you explain the relationship between short-term rates and long-term rates during this time span ?
How about the relationship for the years 1974 and 1975 ?
Go back to your money supply figures, compare the growth of the money supply to the movement in the level of interest rates ? What conclusions can you draw ?
Do the same thing for theCPI series and the Federal budget deficit series. What conclusions can you draw ?

INTEREST RATE DATA

YEAR T-BILL RATE T- BOND RATE 1 T- BOND RATE 2 INDEX 1 INDEX 2 INDEX 3
1970 4.84 6.39 na 100.00 100.00 na
1971 4.39 5.93 na 90.70 92.80 na
1972 5.28 6.36 na 109.09 99.53 na
1973 7.01 6.74 na 144.83 105.48 na
1974 6.79 7.43 na 140.29 116.28 na
1975 6.16 8.00 na 127.27 125.20 na
1976 4.64 6.87 na 95.87 107.51 na
1977 6.52 7.69 7.94 134.71 120.34 100.00
1978 9.44 9.01 8.88 195.04 141.00 111.84
1979 10.92 10.39 10.12 225.62 162.60 127.46
1980 13.23 12.84 12.40 273.35 200.94 156.17
1981 11.57 13.72 13.45 239.05 214.71 169.40
1982 8.23 10.54 10.54 170.04 164.95 132.75
1983 9.24 11.83 11.88 190.91 185.13 149.62
1984 8.60 11.50 11.52 177.69 179.97 145.09
1985 7.16 9.26 9.54 147.93 144.91 120.15
1986 5.55 7.11 7.37 114.67 111.27 92.82
1987 6.69 8.99 9.12 138.22 140.69 114.86
1988 8.32 9.11 9.01 171.90 142.57 113.48
1989 7.21 7.84 7.90 148.97 122.69 99.50
1990 6.61 8.08 8.24 136.57 126.45 103.78
1991 4.17 7.09 7.70 86.16 110.95 96.98
1992 3.55 6.77 7.44 73.35 105.95 93.70
1993 3.45 5.77 6.25 71.28 90.30 78.72
1994 6.67 7.81 7.87 137.81 122.22 99.12
1995 5.03 5.71 6.06 103.93 89.36 76.32
1996 5.35 6.64 6.84 110.54 103.91 86.15

YEAR	T-BILL RATE	T- BOND RATE 1	T- BOND RATE 2	INDEX 1	INDEX 2	INDEX 3
1970	4.84	6.39	na	100.00	100.00	na
1971	4.39	5.93	na	90.70	92.80	na
1972	5.28	6.36	na	109.09	99.53	na
1973	7.01	6.74	na	144.83	105.48	na
1974	6.79	7.43	na	140.29	116.28	na
1975	6.16	8.00	na	127.27	125.20	na
1976	4.64	6.87	na	95.87	107.51	na
1977	6.52	7.69	7.94	134.71	120.34	100.00
1978	9.44	9.01	8.88	195.04	141.00	111.84
1979	10.92	10.39	10.12	225.62	162.60	127.46
1980	13.23	12.84	12.40	273.35	200.94	156.17
1981	11.57	13.72	13.45	239.05	214.71	169.40
1982	8.23	10.54	10.54	170.04	164.95	132.75
1983	9.24	11.83	11.88	190.91	185.13	149.62
1984	8.60	11.50	11.52	177.69	179.97	145.09
1985	7.16	9.26	9.54	147.93	144.91	120.15
1986	5.55	7.11	7.37	114.67	111.27	92.82
1987	6.69	8.99	9.12	138.22	140.69	114.86
1988	8.32	9.11	9.01	171.90	142.57	113.48
1989	7.21	7.84	7.90	148.97	122.69	99.50
1990	6.61	8.08	8.24	136.57	126.45	103.78
1991	4.17	7.09	7.70	86.16	110.95	96.98
1992	3.55	6.77	7.44	73.35	105.95	93.70
1993	3.45	5.77	6.25	71.28	90.30	78.72
1994	6.67	7.81	7.87	137.81	122.22	99.12
1995	5.03	5.71	6.06	103.93	89.36	76.32
1996	5.35	6.64	6.84	110.54	103.91	86.15