Econ 502

ECO 502 – Selected Topics in Macro

Winter 2016

Essay Assignment 2

Due Noon on February 8, 2016

Dr. Michael S. Miller

The Great Recession (GR) lasted from December 2007 until June 2009. You know from this course that the GR was the longest, deepest, and most severe recession since the Great Depression. However, it was unclear in mid-2008 that the economy was actually going to experience a severe recession, based on the information available at the time. The FMOC reacts to both current data and forecasts for what is to come when formulating its policy. To get a taste of what the Fed faces when the economy takes surprising turns, please read the Statements of the FOMC from 2008 for June, August, September, October (two statements) and December. The link: http://federalreserve.gov/monetarypolicy/fomchistorical2008.htm

Then, set out in a narrative (in a story to, say, a colleague) what the Fed believed the economy was doing and the policy actions it pursued to deal with the changes the Fed thought were happening to the economy.

Lastly, let’s compare what the Fed forecasted for the economy with what actually happened. On page 11 of the pdf for the Fed minutes of the June 25 meeting (http://federalreserve.gov/monetarypolicy/files/fomcminutes20080625.pdf) the Fed set out its forecast for 2008 and 2009. Compare the forecasts of the Fed with actually happened in the US in 2008 and 2009 for GDP on an annual basis. Then compare the actual unemployment rates of, say, December 2008 and December 2009 with the annual forecasts the Fed made in this June forecast. Comment on what you find and speculate on why the forecasts could be so, well, wrong. Use FRED as your data source: https://research.stlouisfed.org/fred2/series/A191RL1A225NBEA and https://research.stlouisfed.org/fred2/series/UNRATE?catbc=1&utm_expid=19978471-2.Y0NpAPxIQfK_8K7-O4DTQg.1&utm_referrer=https%3A%2F%2Fresearch.stlouisfed.org%2Ffred2%2Fcategories%2F32447

ECO 502...