Assignment Tasks
Task 1: (12 marks)
A considerable body of academic research supports the
argument that the slope of the yield curve (the spread between short term and
long term interest rates) is a reliable predictor of future economic activity.
Investors and policy makers have extensively used yield curves as a simple
forecasting tool in real time to better understand business cycles.
1.
Construct the yield curves in
Australia that represents the structure of
interest rate in 6 successive periods respectively from March 2010 to March
2015. (4 marks)
Notes: For this task,
students are expected to use yields for short term and long term government
securities (minimum three maturities are required to plot the yield curve)
provided on CloudDeakin at 6 different points in time respectively.
2.
Critically examine how
changes in the slope of the yield curve provide possible explanation for
changes in economic prospect of the Australian economy. (5 marks)
Notes: For this task,
students are required to construct slopes of the yield curves from Task 1 and
plot the slopes together with the GDP growth over the same period.
3.
Economists often use combined
indicators to reconcile explanations for what
happened to the economy in the past as well as reaffirming their
prediction of economic outlook in the future. Use the unemployment rate and
building approvals indicators provided on CloudDeakin to justify the
reliability of the yield slope as a leading indicator of the business cycle. (3 marks)
Task 2 (8 marks)
a.
Critically examine the
effectiveness of monetary policy responses in the wake of economic and
financial stress during the GlobalFinancial Crisis (GFC) and the European Debt Crisis. Illustrate how these
responses have affected the shape of the yield curve. (4 marks)
b.
Draw some conclusions and
policy implications of the yield curves for investors and policy makers in
Australia. (4 marks)
Notes: In this task, students
are expected to discuss how the RBA or other central banks use available tools
to mitigate negative impacts of financial crises and distress on investment
sentiment, consumers and industries in the economy.
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