ECON 562 Montclair State University Unemployment and Monetary Policy Paper

In this box you will connect the earlier labor market box to monetary policy before, during, and after the financial crisis in 1000 words. In the earlier box you looked at the unemployment rate for the 2006-2016 period. Now you are going to add inflation and the Fed Funds Rate (the benchmark interest rate of the US).

– Go to BLS.gov and look for 1) the Unemployment Rate, and 2) the Consumer Price Index (inflation).

– Get the Effective Federal Funds Rate from the St. Louis Federal Reserve Bank FRED database.

The relation between interest rates, unemployment, and inflation is clearly stated in the Federal Reserve document accompanying these instructions.

The purpose of the box is to analyze these variables within a common framework with emphasis on the Fed’s mandate during the Great Recession with the Taylor Rule in mind [25 points]. Make sure you plot the variables separately [25 points each]. The charts should have a title and have the axis labeled (with time in x-axis, and label the variable and its units in the y-axis).

SHORTCUT:

The Federal Reserve Bank of St. Louis compiles and stores economic data from many sources, including the Bureau of Labor Statistics. One-stop shopping for the data in this box can be found here:

https://fred.stlouisfed.org/ (Links to an external site.)

The series are:

– Unemployment Rate (UNRATE)

– Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPIAUCSL) —it is in levels, so you have to request it as “compounded annual rate of change” to have the monthly change in prices.

– Effective Federal Funds Rate (DFF) —it is in daily frequency, so you have to request it as monthly to match the other variables.

You can use the ready-made charts from FRED, though I encourage you to develop further your graphing and communication skills in Excel.