KU Intermediate Economics Analysis Essay
In this Exercise we will analyze the cyclical properties of household expenditure on non-durable goods, on durable goods, and on services. The focus is on how these variables correlate with GDP and whether there is the smoothing behavior predicted by the theory?
The purpose of this assignment is to test the theory against the data. Get the following series from the St. Louis Federal Reserve Bank FRED database from April 2002 to December 2019 (the first two are provided in monthly frequency and the last two in quarters, we will adjust for that):
– 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)
These series are in levels (i.e. in dollars) but our interest is in their volatility (ups and downs) so we will calculate their implied annualized growth rate (percentage change from data point to data point equivalent to a year’s worth of growth — in FRED change the Units to Compounded Annual Rate of Change in EDIT GRAPH) and plot each of the consumption series separately against real GDP. GDP has to be in each of the three graphs.