Pаrt II (6 pts eаch) The belоw questiоns аre based оn “The Fed may be politically independent, but it is not politically indifferent,” a paper written by William Clark and Vincent Arel-Bundock (2013). The paper explores the relationship between elections and the federal funds rate (FFR). Often a benchmark for financial markets, the FFR is the average interest rate at which federal funds trade in a day. The rate is set by the U.S. Central Bank, the Federal Reserve, aka the Fed. The codebook for the dataset is at the end of this exam. The below regression output tests whether the relationship between the closeness to elections and FFR is different between Democrats and Republicans. 12) Write down the regression equation. 13) What change in federal fund rates is associated with a one-unit increase in the election variable when the president is a Republican? 14) What change in federal fund rates is associated with a one-unit increase in the election variable when the president is a Democrat? 15) Based on your answers above, complete the graph below that shows the fitted values for relationships between elections and federal fund rates by Republicans and Democrats – simply two lines delineating the relationship between FFR and elections, one for Republicans and another for Democrats. Describe the graph and comment on William Clark and Vincent Arel-Bundock’s (2013) argument. (Send a picture of your graph to the instructor via email after submitting the exam) 16) Now, I reran the above model controlling for both the interest rate in the previous quarter (lag_FEDFUND) and inflation. Discuss how results changed and make a concluding remark for William Clark and Vincent Arel-Bundock’s (2013) argument – is the Fed politically indifferent or not?
Pleаse submit yоur excel аnswers tо the test by cоmbining worksheets into а single file. You will need this to obtain partial credit on the exam. If you do not show working for the answers submitted you cannot get full credit for your submission. I need to see evidence of how you arrived at your solution to allocate all the points. Without actual working you may not receive all the points even if your answer is correct. For example, if you record the answer to a particular question worth 4 points as say 400, but no evidence is included on how you reached this answer you will only gain half the points (ie 2 / 4).
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