In this Exercise we will analyze the cyclical properties of household expenditure on non-durable goods, on durable goods, and on services. The focus is on how these variables correlate with GDP and whether there is the smoothing behavior predicted by the theory?
Instructions
The purpose of this assignment is to test the theory against the data. Get the following series from the St. Louis Federal Reserve Bank FRED database from April 2002 to December 2019 (the first two are provided in monthly frequency and the last two in quarters, Edit Graph to have them all in quarterly frequency):
– Real Personal Consumption Expenditures: Nondurable Goods (PCENDC96)
– Real Personal Consumption Expenditures: Durable Goods (PCEDGC96)
– Real Personal Consumption Expenditures: Services (PCESVC96)
– Real Gross Domestic Product (GDPC1)
These series are in levels (i.e. in dollars) but our interest is in their volatility (ups and downs) so we will calculate their growth rate (in FRED change the Units to Percent Change from a Year Ago in EDIT GRAPH) and plot each of the consumption series separately against real GDP. GDP has to be in each of the three graphs.
Your work has to have:
– Introduction (what is the question that you are addressing, for example, how much consumption smoothing can we find in the data? Which types of consumption exhibit more of it? —25 points)
– Narrative (a description of how you are addressing it —50 points)
– Conclusion (what do you learn from the exercise and also ties together the two parts above —25 points)
Not counting the graphs and/or illustrations, the word-count should be around 500 words. You are free in regard to the design (font, font size, spacing, background color, etc.) The file has to be uploaded to CANVAS in PDF format.
Note: This is not a research paper. Your write-up has to be based only on the class material, so there is no bibliography section.
Any question please feel free to ask. Make sure this is plagiarism free. Also please make sure to completely answer all the questions and include the necessary graphs. Thank you so much
