Homework Assignment No. 1: due October 11, 2000

Read the Nelson and Schwert American Economic Review paper on short-term interest rates as predictors of inflation. The Eviews dataset F533hw1.WF1 contains monthly CPI inflation (NSA and SA) and interest rates for the period 1926:01-2000:08. Your assignment is to reproduce the major results in the Nelson and Schwert paper for their time period (1953:01-1971:07), and to see how their results change using other sample periods. Also, do you think that the seasonally adjusted data perform better or worse than the NSA data? Why?

How would you predict the real rate of interest using the Nelson-Schwert approach? Plot and discuss the time series behavior of the (ex ante) real rate over the 1926-2000 period.

You should write a short, concise report that includes a minimum of computer output. Show only what is necessary.

Note: You do not have to use Eviews. The same data are available in an Excel spreadsheet, F533hw1.XLS. You may use any computer program that you know how to use.

---

A full-text version of this assignment is available in Acrobat's portable data format (.pdf). The file is about 8K and can only be viewed (and printed) using a copy of Acrobat Reader.

If you do not have a copy of this program, you may download a program that works for Windows 95 or NT now [this is a self-extracting ZIP file that you must install on your computer to read PDF files]. If you are a Mac user, you might try installing the program for Macs now [this is a self-extracting binhex file that you must install on your computer to read PDF files]. If you want the current version of the Adobe Acrobat Reader for other platforms, visit Adobe's web page.

Click here to download the full text of this assignment.

---

Some sample calculations related to this quiz are described in an 149K PDF file which can only be viewed (and printed) using a copy of Acrobat Reader.

Click here to download the sample answer to this homework.

These calculations are contained in the Eviews file F533hw1A.WF1.

---

Click here to see the histogram showing the grades for this quiz.

A histogram showing the grades for this homework is available in Acrobat's portable data format (.pdf). The file is about 4K and can only be viewed (and printed) using a copy of Acrobat Reader.

Click here to download this graph.

---

Return to FIN 533 Home Page