CPI Releases and Interest Rates Dynamics Assignment

Assignment Task

Exercise

Using this data, answer the following questions. Feel free to be creative in how you answer the questions.

1. What is the difference between total “CPI” and “Core CPI”? Over the full period from 2018-2022, what is been the average level of core and total CPI? Which measure of inflation is more variable? Why does the Fed focus on core CPI rather than total CPI? 
2. Over the full period from 2018-2022, what was the average change – in absolute value terms – in the 2-year Treasury rate during the days of the CPI release? Did the change in yields on days of the CPI release become larger during 2021 and 2022 as compared to 2018-2020? Why might this be? 
3. Based on the data during 2018 through 2020, is there a relationship between the release of the CPI and changes in the 2-year Treasury rate? 
4. Repeat your analysis from question 3 using data from 2021 and 2022. Does the evidence seem consistent? If not, how might you explain the difference?
5. How do you explain the change in the 2-year Treasury yields on 11/10/2021 and 11/10/2022?
6. Explain how this exercise relates to the model for loanable funds used to understand interest rates.

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