Using data from the St. Louis Federal Reserve: Examine the relationship between financial market risk and recessions in the United States.
One way to measure the degree of risk in financial markets is to look at the TED spread, which is the difference between the 3-month London Interbank Offered Rate (LIBOR) (USD3MTD156N) and the 3-month U.S. Treasury bill (DGS3MO).
The higher the value of the TED spread the more expensive it is for banks to borrow relative to what it costs the U.S. government to borrow, which means financial markets have become riskier.
The dates of U.S. recessions can be found from the National Bureau of Economic Research's website
Calculate and graph the TED spread from 1986 to the present
The United States experienced a severe recession from December 2007 to June 2009. What happened to TED spread during the 2007-2009 recession? Did the TED spread begin to rise before or after the recession began? What is the significance of this?
How does the behavior of TED spread during the 2007-2009 recession compare to its behavior during earlier recessions? What does this suggest about financial markets during the 2007-2009 recession?