Dominican University St Louis Federal Reserve Bank Economic Performance & GDP Analysis In this box you will analyze the cyclical properties of household ex

Dominican University St Louis Federal Reserve Bank Economic Performance & GDP Analysis In this box you will analyze the cyclical properties of household expenditure on non-durable goods, on durable goods, and on services. That is, how these variables correlate with the business cycle and whether there is the smoothing behavior predicted by the theory.

Get the following quarterly series from the St. Louis Federal Reserve Bank FRED database from 2002 onwards (note that the first two are provided in monthly frequency and the last two in quarters):

– 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)

Download into Excel*. These series are in levels (i.e. in dollars), so calculate their quarterly growth rate (percentage change from quarter to quarter —compounded annual rate of change in EDIT GRAPH in FRED) and plot each of the first three series separately against real GDP in all of them [25 points each series].

What features do you observe? How are they different? From a firm’s perspective, why are these patterns important? [25 points]

The objective of this box is to unify the three indicators into a common framework with emphasis on their correlation and their volatility relative to GDP. Your writing should reflect your familiarity with the concepts and the definitions, along with the theoretical background behind the consumption-saving decision of the household. The theory in the book is about aggregate consumption, and predicts consumption smoothing which is in fact observed in the aggregate, but does it hold in these components of consumption? As always, the charts should have a title and have the axis labeled (with time in x-axis, and label variable(s) and units in the y-axis).

* You can use the ready-made charts from FRED, though I encourage you to develop further your graphing and communication skills in Excel.

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I am trying to download the data from the St. Louis Federal Reserve Bank, but I am confused as to which one to
select. For example, when I search for Real Personal Consumption Expenditures: Durable Goods, few options come
up?
Take the first option on the list after you enter the series’ name in the search field; do the same for real GDP and
for the other types of consumption. You can also type directly in the search box the code for the series (in
parenthesis in the instructions). This one is the one for durables:
https://fred.stlouisfed.org/series/PCDGCC96 (Links to an external site.)
How do I calculate the quarterly growth rate?
The correct way to write the formula is ((current quarter – past quarter) / past quarter) x 100. This is the
percentage change of the quarterly values, which is the growth rate. Here is how the growth rate between the first
and second quarter of 2002 would be calculated for nondurable goods (this would be repeated to the end of the
sample just with copy/paste on the corresponding cells):
Frequency: Quarterly
observation_date
PCNDGC96 Growth Rate
2002-01-01 2148.196
2002-04-01 2149.663
0.068289858
How many graphs should I make?
You will need three graphs. Each one will include one of the types of consumption growth rate and the quarterly
growth rate of GDP. So GDP growth will be in the three graphs. You need GDP growth in each graph so that you
can easily compare the growth rates of each component of real personal consumption to the growth rate of GDP.
On the x-axis you will have the time (2002-latest available value). And you will do this for each of the components
of consumption. For example, your first graph could be Durable Goods growth and the real GDP growth rate on the
y axis, time on the x-axis. That graph will have one line for Durable Goods growth and one line for real GDP growth.
The next one could be the nondurable goods growth rate and GDP growth on the y axis, and time on the x axis,
and so on. Remember to properly label all the graphs (title and axis).
Or, you can also take the SHORTCUT to the ready-made graphs at the bottom of the Assignment’s instructions and
use them in your Box without point penalty.

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