Hong Kong Yield Curve - Forecast the future path of interest rates using the expectations theory of the term structure.
A. Get data on 1 and 2 year interest rates for Exchange Fund Bills and Notes at the Hong Kong Monetary Authority Website and get data from Table 5.3.1 for December, 2016. Assume that the expectations theory of the term structure is true. Use the yield curve to (approximately) calculate the market's expectation of the 1 year interest rate on December 31. 2017.
B. Get data on 3 year Government Bond Benchmark yield rates (using indicative pricing) from Table 9.4.1. Calculate the market's expectation of the 1 year interest rate on December 31, 2018 (2 years from now).
C. Using data on 5 year Government Bond rates from Table 9.4.1, calculate the market's expectation of the yield to maturity on a 2 year note on December 31, 2019 (3 years from now).
Natural Interest Rate. Empirical researchers suggest a simple empirical proxy for estimating the ex ante interest rate. They suggest a moving average of the growth rate of real per capita household consumption. The logic is that household consumption can reflect expectations of future economic growth.
a. The table also reports information on 10 year TIPS rate from 2003-2014 Link. Calculate the average level of the TIPS yield from the period prior to the Global Financial Crisis (2003-2008) with the average from the pre-crisis period. Can the decline in the ex ante rate explain the decline in equilibrium TIPS rates?
b. The table also reports the nominal interest rate for long-term bonds for Japan using data from OECD Link. Estimate the expected inflation rate for Japan using the breakeven rate between the nominal interest rate and the proxy for the ex ante rate. Is this rising or declining?
Attachment:- Econ Assignment.rar