Macroeconomics 5th Edition by Olivier Blanchard

Exercise 1

Japan's future
As we discussed in Chapter 15, the yield curve slopes up (down) when financial market participants expect short-term interest rates to increase (decrease) in the future. Go to the Web site of The Economist magazine (wtvw.economist.com). Find the 'Markets Data" section. In the section "Economic and Financial Indicators," you should be able to obtain three-month, two year, and 10-year interest rates for Japan.
a. What is the three-month interest rate in Japan Is it still near zero What is the two-year interest rate in Japan Does the difference between the two-year and three-month interest rates suggest that financial market participants expect Japan to escape the liquidity trap in the near future
b. Now compare the 10-year interest rate in Japan to the three-month interest rate. Does the difference between these two interest rates suggest that investors expect that Japan will escape the liquidity trap within a decade
c. Now look at the most recent data on inflation and growth for Japan (probably under the title "Output, Prices, and Jobs" on The Economist Web site) and the forecasts for these variables for the near future. Do these data suggest that Japan will soon escape the liquidity trap
d. Now look at data for economies other than Japan. Consider advanced and emerging economies. Is inflation low or negative (or forecast to be low or negative) in economies other than Japan If so, look at the growth rates and short-term interest rates for these economies. Are any of these economies close to a liquidity trap