descriptive analysis and regression anaysis

Project Description:

go to click on all historical data files and open the zip files. go to the folders data, then monthly, and then copy/paste the following variables, beginning july 2000, into excel: h15_mortg_na, h15_swaps_y2, h15_swaps_y10, h15_tcmnon_y2, and h15_tcmnom_y10. (in excel, go to data, then text-to-columns, and follow the directions to prepare your data for analysis.) next, computing the following spreads:
• spread1: spread between h15_swaps_y10 and h15_tcmnom_y10
• spread2: spread between h15_mortg_na and h15_tcmnom_y10
• spread3: spread between h15_tcmnom_y10 and h15_tcmnom_y2
• spread4: spread between h15_swaps_y10 and h15_swaps_y2
please e-mail your excel files with all of these variables.

1. descriptive analysis: construct a 4x4 table with one of the spreads listed in each row, and then the answers to question a in column 1, answers to b in column 2, etc..
a. match the spreads best captureing the markets’ perceptions of future inflation risk, future fixed-for-floating funding risk (for net receiver), systemic failure of the banking sector due to increasing credit (default) risk, and systemic failure of mortgage market due to increasing credit risk. you must provide an explanation for your answers to receive any credit.
b. compute confidence intervals at the 10 percent level of significance. although excel may be used for these computations, you must write down the formula(s) used or you will not receive any credit. graphically illustrate the distributions and label the confidence intervals for each series.
c. after 2007, did any spread approach or exceed the confidence intervals? comment on the statistically significant movements on your graphs.
d. for statistically significant spread movements observed after 2007, discuss any relevant economic events the spread(s) may capture. list citations and weblinks to authoritative sources (e.g. speeches from federal reserve governors) for the events you describe.

2. regression analysis: explaining spread movements
a. run a regression that examines whether banking sector weaknesses can be explained by the perceived effectiveness of monetary policy as proxied by inflation expectations, expectations of long-term corporate financing costs, and current credit market instability as proxied by the mortgage market. note: include a lag of the dependent variable as one of the explanatory variables in the regression. to create a new lagged variable, copy the explanatory variable series, but paste it into the 8/2000 row, then eliminate the very last or most recent observation. now run the regression with your other explanatory variables beginning with the 8/2000 observations and the new lagged variable. write down the regression equation you estimate, and also include a copy of your regression results with your project.
b. construct a 3x3 table with your explanatory spreads listed in for each row and the answers to parts b, c, and d for the columns. comment on the coefficients signs and describe the relationships between the independent and explanatory variables.
c. carefully explain whether the relationships you found make intuitive economic sense.
d. comment on the likelihood that any spread explains dependent variable movements.
e. what economic interpretation would you give to the lagged independent variable? (hint: relate your answer to a theory we discussed in class.)
f. summarize the results. what factor(s) contribute to weakness in the banking sector?
g. extra credit: do you trust the regression results? why or why not? explain.

(already have the data, attached here with the question)
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