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~ Macro Connections ~

[Draft Version]


(1) Browse the Data: You need to choose two time series that you would like to analyze. For example, I chose the Federal Funds Rate and the Unemployment Rate. Check with the Coach for an ok on your variable selection.

(2) Create a Chart of the Long-term View of your data:
Example I: The Interest Rate
Example II: The Unemployment Rate

Your choice of time period will be influenced by the data availability. For example, in my project, the series are limited to the period 1970-1999. While GIF and PDF charts are available, I suggest that the PDF Chart be used in this project. This will allow you to create multi-series charts in advanced features workspace. Print 'both' charts for my review.

(3) Create a Chart of the Short-term View of your data:
Example III: The Interest Rate
Example IV: The Unemployment Rate

The short-term period that you decide to analyze should be at least ten years in duration. For example, I chose the period 1973-1993. Print 'both' charts for my review.

(4) Create a Multi-Series Chart of your short-term view:
Example V: The Interest Rate & The Unemployment Rate

This multi-series chart will facilitate your visual inspection- remember you are looking for "Macro Connections". Print Chart for my review.

(5) Transform your data:
I suggest you transform both of your variables into a percentage change  form (4 periods ago for quarterly data and 12 periods ago for monthly data).   I also suggest that you lag your outside variable to obtain the best fit- you decide- make the call- on the degree of lag necessary. In my example, I decided to use a percentage change from 12 periods ago (one year) on both variables and a 18 period lag (one and a half year) of the exogenous (outside) variable- the federal funds rate. Do not print for my review.

(6) Create a Multi-Series Chart of your transformed  short-term view:
Example VI: The Interest Rate (% ch, lagged) & The Unemployment Rate (% ch)

This chart should contain both of your transformed variables. Print chart for my review.  

(7) Create a XY PLOT using your transformed data. Your transformed variables will cover your long-term view:
Example VII: The Interest Rate [X] (% ch, lagged 18 periods) / The Unemployment Rate [Y] (% ch) XY PLOT

This technique can be used to assess the nature and degree of correlation that you visually observed above. Print page (including regression results) for my review.

(8) Prepare a Summary of your findings: (75 Points)

In your report, include your thoughts on how your two variables are related.  Specifically, present the theory (tell a story) that explains the relationship that you have observed, charted, and xy plotted. Your Summary should be typed, 3 pages, double spaced, 12 pt font size, 1" margins, and provide a cover page of your design. Due date is the last day of regular class (not the final exam day).

(9) I suggest you make a Backup copy of your project for your records and Celebrate your accomplishment.
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