# Diego Mendez-Carbajo

## Economics

## Materials Contributed through SERC-hosted Projects

### Other Contributions (6)

The Interest Swap Spread part of Pedagogy in Action:Library:Using Federal Reserve Economic Data :Examples

This case quantifies the interest rate swap spread, as reflected on the 10-year Treasury bond yields, over time. This activity can be used as either (a) an instructor-led example in which the instructor shows either on paper or a screen the data and students analyze them, or (b) as a student exploration in which students find the specified data. Instructors with less time could use option (a) and instructors interested in their students learning about the FRED database could use option (b). This activity plots the interest rate paid by the fixed-rate payer on an interest rate swap transaction (e.g. the 10-Year Swap Rate), the yield on the matching Treasury bond (e.g. the 10-Year Treasury Constant Maturity Rate), and computes the difference between the two of them. This difference is an approximation of the swap rate and it displays both a secular trend and cyclical behavior. This activity is suitable for addressing each of the following issues:1. How does the interest rate swap rate change over time?2. How did the interest rate swap spread adjust during the 2008-2009 financial crisis?3. What is the relationship between monetary policy and the interest rate swap spread?

Sovereign Debt Risk Premium part of Pedagogy in Action:Library:Using Federal Reserve Economic Data :Examples

This case quantifies the different default risk premiums that financial markets assign to sovereign bonds over time. This activity can be used as either (a) an instructor-led example in which the instructor shows either on paper or a screen the data and students analyze them, or (b) as a student exploration in which students find the specified data. Instructors with less time could use option (a) and instructors interested in their students learning about the FRED database could use option (b). This activity plots the yields of a high-yield sovereign bond (e.g. Interest Rates, Government Securities, Government Bonds for Spain) and a low-yield sovereign bond (e.g. Interest Rates, Government Securities, Government Bonds for Germany) and computes the difference between the two of them. This difference is an approximation of the sovereign bond default risk premium and it displays both a secular trend and cyclical behavior. This activity is suitable for addressing each of the following issues:1. Why does the sovereign bond risk premium increase or decrease over time?2. How did the sovereign bond risk premium adjust after the 2008-2009 financial crisis?3. What is the role of rating agencies in helping financial markets assess sovereign bond default risk?

Inflation Expectations part of Pedagogy in Action:Library:Using Federal Reserve Economic Data :Examples

This case quantifies inflation expectations, as reflected in bond yields, over time. This activity can be used as either (a) an instructor-led example in which the instructor shows either on paper or a screen the data and students analyze them, or (b) as a student exploration in which students find the specified data. Instructors with less time could use option (a) and instructors interested in their students learning about the FRED database could use option (b). This activity plots the yield of a non-inflation-adjusted Treasury bond (e.g. the 30-Year Treasury Constant Maturity Rate), the yield of an inflation-adjusted Treasury bond (e.g. the 30-Year Treasury Inflation-Indexed Bond), and computes the difference between the two of them. This difference is an approximation of inflation expectations developed by financial markets and it displays both a secular trend and cyclical behavior. This activity is suitable for addressing each of the following issues:1. How do inflation expectations change over time?2. How did inflation expectations adjust after the 2008-2009 financial crisis?3. What is the relationship between monetary policy and inflation expectations?

Corporate Risk Premium part of Pedagogy in Action:Library:Using Federal Reserve Economic Data :Examples

This case quantifies how financial markets assign different default risk premiums to corporate bonds over time. This activity can be used as either (a) an instructor-led example in which the instructor shows either on paper or a screen the data and students analyze them, or (b) as a student exploration in which students find the specified data. Instructors with less time could use option (a) and instructors interested in their students learning about the FRED database could use option (b). This activity plots the yields of a high-yield corporate bond (e.g. Moody's Baa Corporate Bond Yield) and a low-yield corporate bond (e.g. Moody's Aaa Corporate Bond Yield) and computes the difference between the two of them. This difference is an approximation of the corporate bond default risk premium and it displays both a secular trend and cyclical behavior. This activity is suitable for addressing each of the following issues: 1. Why does the corporate bond risk premium increase or decrease over time? 2. How did the corporate bond risk premium adjust after the 2008-2009 financial crisis? 3. What is the role of rating agencies in helping financial markets assess corporate bond default risk?

Nominal and Real Interest Rates part of Pedagogy in Action:Library:Using Federal Reserve Economic Data :Examples

This case quantifies real interest rates over time. This activity can be used as either (a) an instructor-led example in which the instructor shows either on paper or a screen the data and students analyze them, or (b) as a student exploration in which students find the specified data. Instructors with less time could use option (a) and instructors interested in their students learning about the FRED database could use option (b). This activity plots a nominal interest rate (e.g. the 30-Year Conventional Mortgage Rate), a price index (e.g. the Consumer Price Index for All Urban Consumers), and after expressing the price index in growth rates- computes the difference between the two of them. This difference is the real interest rate and its secular trend and its cyclical behavior can be compared to those of the nominal interest rate. This activity is suitable for addressing each of the following issues:1. Why does the real interest rate increase or decrease over time?2. How did real interest rates evolve after the 2008-2009 recession?3. What is the role of expected inflation in determining real interest rates?

Purchasing Power Parity part of Pedagogy in Action:Library:Using Federal Reserve Economic Data :Examples

In this case, students learn how, over a long period of time, the nominal value of a currency is related to the ratio of prices at home and abroad. They will search for a nominal exchange rate (e.g. the Japanese yen / U.S. dollar exchange rate), the consumer price levels in the domestic (the U.S. in this example) and in the foreign country (Japan in this example) and compute the ratio between the price levels. Students will plot this ratio as an approximation of the purchasing power parity (PPP) and identify periods when it does, and does not, inform the evolution of nominal exchange rates. Through peer instruction, students will address each of the following issues: 1. Why does the purchasing power parity (PPP) increase or decrease over time? 2. When does the purchasing power parity (PPP) inform the value of a currency better: in the short run or in the long run? 3. What factors, besides price levels, influence the value of a currency?