3. Historical Data Before running any experiments, it will be useful simply to examine some of the macroeconomic data to see what they look like. Graphs are a good way of getting a "feel" for the data. Since 1970 there are five periods that can be classified as general recessionary periods: 1974:1-1975:4, 1980:2-1983:1, 1990:3-1991:1, 2001.1-2001.3, and 2008:1-2009:2. Similarly, two subperiods can be classified as general inflationary periods: 1973:2-1975:1 and 1978:2-1981:1. These subperiods are useful for reference purposes. In this chapter you are asked to table and graph the variables listed in Section 2.6 for the period since 1970:1 and examine how they behave during the recessionary and inflationary subperiods. You should save these tables and graphs for future reference. You may also want to table and graph the variables for the entire period since 1952:1. If you do so, how many other recessionary and inflationary subperiods can you pick out? In doing the work in this chapter (and the others) you should always use Table A.2 in Appendix A as the reference for the variable names. The definition of a variable is not always repeated when the notation for the variable is used in describing the experiments. Experiment 3.1: Variables for the 1970:1-2011:2 Period Table and graph the variables listed in Section 2.6 for the 1970:1-2011:2 period. Some of the following questions may require more knowledge of macroeconomics than you currently have. Do your best for now to get a feel for the data, and then come back to the tables and graphs to review the data from time to time as you gain more knowledge. Recessionary Periods From the table and graph for real GDP, GDPR, can you pick out the four recessionary periods mentioned above? Which of the other variables tend to follow the business cycle, and which do not? Can you think of reasons why some do and some don't? Focus in particular on the components of GDPR and on the saving rate, SRZ. Inflationary Periods From the table and graph for the percentage change in the GDP deflator, PCGDPD, can you pick out the two inflationary periods? How does the import price index, PIM, behave during these periods? How about the nominal wage rate, WA, and the real wage rate, WR? How much overlap is there between the recessionary and inflationary periods? (These overlap periods are called periods of "stagflation.") Can you speculate on what might have caused the stagflation? Can you pick out any variables that you have graphed as possible culprits? Labor Market Variables How did the unemployment rate, UR, behave during the recessionary and inflationary periods? Is there a tight relationship between UR and the rate of inflation, PCGDPD? How did productivity, PROD, behave during the recessionary periods? Why might PROD be procyclical? Calculate the values of the labor force participation rates L1/POP1, L2/POP2, and L3/POP3 for a few of the quarters within the overall period. Note how they have changed over time, and note the remarkable rise in L2/POP2, the participation rate for women 25-54, since 1970. What might have caused this rise? Are the labor force participation rates procyclical or countercyclical or neither? Do they seem to vary with UR? Why might they vary with UR? Fiscal Policy Variables and Other Federal Government Variables Examine how the fiscal policy variables COG, D1G, D2G, D3G, D4G, D5G, and TRGHQ have changed over time. Examine how the government deficit SGP and the government debt -AG have changed over time. What are some of the factors that led to the large rise in the deficit? Why are interest payments of the government, INTG, growing so rapidly? What consequences does this have for SGP and AG? Monetary Policy Variables and Other Financial Variables How did the bill rate, RS, behave during the recessionary periods? During the inflationary periods? What does this say about Fed behavior? What is the relationship between the long term bond rate, RB, and RS? Why might RS fluctuate more than RB? Examine carefully the behavior of RS during the period 1979:4-1982:3. Does this behavior seem different than at other times? How did the money supply, M1, behave during this period versus at other times? Does it seem to you that the Fed behaved differently during this period than otherwise? Compute velocity, GDP/M1, for a few quarters and examine how it has changed over time. How stable over time does it seem? What happened to GDPR and GDPD in 1974? What was the monetary response to this in 1975? (Look at RS and M1.) What was the monetary response following the stock market crash in 1987? Can you pick out the effects of the stock market crash on household wealth, AA? Foreign Sector Variables Examine how PIM, IM, PEX, and EX have changed over time. How has the saving of the foreign sector, SR, changed over time? What are the main factors that have led to this change? (-SR is roughly the U.S. current account.) SGP and -SG are sometimes call the "twin deficits." Examine their relationship over time. Can you think of reasons why the two deficits might be positively correlated? Extra Credit If you have tabled or graphed the variables from 1952:1 on, answer the relevant questions above for this longer period. For example, how many recessions can you pick out since 1952? How many high inflation periods? Are some of the relationships that were not stable after 1970 closer to being stable before 1970?