Question: How reliably does an inverted yield curve anticipate a recession
How reliably does an inverted yield curve anticipate a recession? How far in advance? Plot from 1970 (as in Figure) the difference between the 10-year Treasury yield (FRED code: GS10) and the three-month Treasury bill rate (FRED code: TB3MS). Discuss the variability of the time between an inversion of the yield curve and the subsequent recession.
Answer to relevant QuestionsDownload the data used in Data Exploration Problem 4 and (a) find the most recent period for which the yield curve was (approximately) flat and (b) the longest time period for which yield curve was inverted. Suppose you see evidence that the stock market is efficient. Would that make you more or less likely to invest in stocks for your 401(k) retirement plan when you get your first job? Consider again the stock described in Problem. What might account for the difference in the market price of the stock and the price you are willing to pay for the stock? Use the dividend-discount model to explain why an increase in stock prices is often a good indication that the economy is expected to do well.Suppose XYZ Corporation's stock price rises or falls with equal probability by $20 each month, starting where it ended the previous month. What is the value of a three-month at-the-money European call option on XYZ’s ...
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