The federal funds rate is the interest rate charged by banks when banks borrow “overnight” from each other. The funds rate fluctuates according to supply and demand and is not under the direct control of the Federal Reserve Board but is strongly influenced by the Fed’s actions. The file titled The Fed contains the federal funds rates for the period 1955 through 2008.
a. Produce a scatter plot of the federal funds rate for the period 1955 through 2008. Identify any time-series components that exist in the data.
b. Identify the recurrence period of the time series. Determine the seasonal index for each month within the recurrence period.
c. Fit a nonlinear trend model that uses coded years and coded years squared as predictors for the deseasonalized data.
d. Provide a seasonally adjusted forecast using the nonlinear trend model for 2010 and 2012.e. Diagnose the model.