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Changing the monetary policy game using quantitative easing: Is it doing the job?. AABRI Conference Las Vegas 2013 October 9-12, 2013 Prof. Ray M. Valadez , Pepperdine University. Last Year’s Presentation. The U.S. unemployment and mortgage rates: A relationship study. Ray M. Valadez - PowerPoint PPT Presentation
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Changing the monetary policy
game using quantitative easing:Is it doing the job?
AABRI Conference Las Vegas 2013October 9-12, 2013
Prof. Ray M. Valadez, Pepperdine University
The U.S. unemployment and mortgage
rates: A relationship
studyRay M. Valadez
Pepperdine UniversityAABRI Conference LV2012-Paper
12079October 4-6, 2012
Last Year’s Presentation
Fed announces new mortgage bond-buying plan, keeps interest rates low• The Fed’s steps were in many ways
remarkable: For the first time, it made a definitive promise that it would keep interest rates ultra-low even if the economy starts to recover. That sent a clear signal that for years it will be cheap for consumers to borrow to buy homes and cars or for businesses to get loans to expand. Washington Post Sept. 9,2013
• http://www.washingtonpost.com/business/economy/fed-expected-to-announce-stimulus-thursday/2012/09/13/38a31be2-fda4-11e1-8adc-499661afe377_story.html
• Retrieved September 20, 2012
News Headlines-Fed actions' economic impact-Washington Post
• The Federal Reserve has launched several programs to lift economic growth over the past few years. The programs seem to have had the effect of raising stock values, reducing the unemployment rate and reducing mortgage rates -- all of which should increase Americans' wealth, make them feel more confident and make it easier to buy a house. In addition to keeping interest rates ultra-low, the Fed earlier launched two rounds of quantitative easing -- purchases of mortgage and Treasury bonds -- and two "Twist" programs that target long-term interest rates specifically.
• http://www.washingtonpost.com/business/economy/fed-actions-economic-Retrereimpact/2012/09/13/4ab78694-fe01-11e1-8adc-499661afe377_graphic.html
• Retrieved September 20, 2012
Figure 1. U.S. Unemployment Rate
Source: Retrieved October 7, 2013 from http://data.bls.gov/timeseries/LNS14000000
The Fed’s Actions seem to indicate that the unemployment rate is correlated to these variables?• Interest Rates
– 10-Yr U.S. Treasury Yields– 30-Yr Fixed Mortgage Rates
• Housing– New starts and– Resale– Case/Shiller Housing 20-Index
Recent QE’s – QE1, QE2, & QE3• QE1:
• QE2:
• QE3:
Recent QE’s – QE1, QE2, & QE3• QE1:
• QE2:
• QE3:
What the literature say?• QE1:
• QE2:
• QE3:
30-Yr Fixed Mortgage Rate Versus 10-Yr U. S. Treasury Rate
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Comparision of the U.S. 30-Yr Fixed Rate & 10-Yr Treasury Yield Rate
30-Yr Fix Mortg Rate
10-Yr U.S. Treasury Rate
Interest-yield
U.S. Unemployment Rate Versus 10-Yr U. S. Treasury Rate
2007 Jan
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Comparision of the U.S. Unemployment Rate
& 10-Yr Treasury Yield Rate
U.S. unemployment rate
10-Yr U.S. Treasury Rate
Interest-yield
U. S. Unemployment Rate Versus 30-Yr Fixed Mortgage Rate
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12.0Comparison of U.S. Unemployment & Mortgage Rates
U.S.Unemployment Rate30-Yr Fix Mortg RateR
ates
*Freddiemac pmms
Pearson Correlation Between Variables (Jan 2007-July2012)
Unemployment Rate
Case/Shiller-20 Index
30-Yr Mortgage Rate
10-Yr Treasury Rate
Unemployment Rate 1.000000 -0.898014 -0.784411 -0.610855
Case/Shiller Index -0.898014 1.000000 0.816641 0.797085
30-Yr Mortgage Rate -0.784411 0.816641 1.000000 -0.784411
10-Yr Treasury Rate -0.610855 0.797085 -0.784411 1.000000
Last Year’s Presentation
Robust Multiple Regression Using Huber's Method (C=1.345)
The U. S. Unemployment rate may be estimated as follows:
equals the Y intercept at x=0 or 24.19
equals 1.99 or coefficient of the 10-Year U. S. Treasury Rate
equals 10-Year U.S. Treasury rate
equals (-0.89) or coefficient of the Case/Shiller housing index
equals the Case/Shiller housing 20 index
equals (-1.79) or coefficient of the 30-Year Freddiemac pmms mortgage rate
equals the 30-Year Freddiemac pmms mortgage rate
equals the estimated error
Estimated Model using NCSS Huber’s robust multiple regression :24.1876134233569+ 1.98592794119342*C2 10-yr Treas Rate-0.0885649861419363*C4 U.S. C/S House 20Index-1.79111500054144*C3 30-yr Mort Rate
Table 2. Analysis of Predictive Model (Aug 2012-Jul 2013)
Analysis of an Unemployment Rate Predictive Model by Ray M. Valadez-2013
unemployment rate = 24.188 + (1.99 X 10-yr treas) - (1.79 X 30-yr mort rate) - (.089 X c/s 20 index)
Y intercept 10-yr treasury C/S House 20-Index 30-Yr Mortg-Rate Unemploy Rate Unemploy Rate
24.18761342 1.985927941 -0.088564986 -1.791115001 Actual Predicted difference % difference
2012 Aug 1.68 145.81 3.6 8.10 8.16 -0.06 -0.77%
2012 Sep 1.72 146.21 3.47 7.80 8.44 -0.64 -8.19%
2012 Oct 1.75 146.02 3.38 7.90 8.68 -0.78 -9.83%
2012 Nov 1.65 145.81 3.35 7.80 8.55 -0.75 -9.62%
2012 Dec 1.72 146.08 3.35 7.80 8.67 -0.87 -11.10%
2013 Jan 1.91 146.19 3.41 7.90 8.93 -1.03 -12.98%
2013 Feb 1.98 146.58 3.53 7.70 8.82 -1.12 -14.48%
2013 Mar 1.96 148.56 3.57 7.60 8.53 -0.93 -12.22%
2013 April 1.76 152.38 3.45 7.50 8.01 -0.51 -6.77%
2013 May 1.93 156.15 3.54 7.60 7.85 -0.25 -3.30%
2013 Jun 2.3 159.54 4.07 7.60 7.34 0.26 3.48%
2013 Jul 2.58 162.49 4.37 7.40 7.09 0.31 4.15%
2013 Aug 2.74 4.46 7.30
92.70 99.05 -6.35 -6.85%