Using data from the St. Louis Federal Reserve
(FRED) (http://research.stlouisfed.org/fred2/),
analyze real and nominal interest rates.
a. Find the most recent values from FRED for
the following four variables: (1) 30-Year
Conventional Mortgage Rate (MORTG),
(2) Moody’s Seasoned Aaa Corporate Bond
Yield (AAA), the 3-Month Treasury Bill:
(3) Secondary Market Rate (TB3MS), the
10-Year Treasury Constant Maturity Rate
(GS10), and (4)University of Michigan
Inflation Expectation (MICH).
b. Using the the most recent expected inflation
rate, compute the expected real interest
rate for each of the above borrowing rates:
(the 30-Year Conventional Mortgage Rate;
Moody’s Seasoned Aaa Corporate Bond
Yield; the 3-Month Treasury Bill: Secondary
Market Rate; and the 10-Year Treasury
Constant Maturity Rate).
c. Suppose the actual inflation rate is greater
than the expected inflation rate. Will
borrowers or lenders be made better off?
Briefly explain.