1 / 15

Financial Institutions and Markets FIN 304

Financial Institutions and Markets FIN 304. Dr. Andrew L. H. Parkes Day 4 “How do financial markets work?”. 卜安吉. Price Indices. GDP deflator Uses Current Year Quantities – Bought today Consumer Price Index Uses Base Year Quantities – Bought in the Base Year Are they the same?.

frey
Download Presentation

Financial Institutions and Markets FIN 304

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Financial Institutions and MarketsFIN 304 Dr. Andrew L. H. Parkes Day 4 “How do financial markets work?” 卜安吉

  2. Price Indices GDP deflator • Uses Current Year Quantities – Bought today Consumer Price Index • Uses Base Year Quantities – Bought in the Base Year Are they the same? Shanghai Dow Stock Index – WSJ Over the last year! Financial Institutions & Markets, Day 4

  3. Price Indices GDP deflator • Uses Current Year Quantities – Bought today Consumer Price Index • Uses Base Year Quantities – Bought in the Base Year Are they the same? http://finance.yahoo.com/q/bc?s=000001.SS&t=2y&l=on&z=m&q=l&c= Shanghai Composite Index – Yahoo!.com almost a year ago! Financial Institutions & Markets, Day 4

  4. What did you buy in 1967? • OK then try 1982? • These are the base years • Were the goods the same? • Notice even our example! • Chain Weighted GDP Price index now Dow Jones World Stock Index One year ago! Financial Institutions & Markets, Day 4

  5. What did today’s purchase cost in 1982? 1967? • That’s the Paasche Index • Today’s goods, base year prices • An MP3 player in 1982? • A digital Camera? • So there are problems with Price indices … U. S. Treasury Bill One year ago: Financial Institutions & Markets, Day 4

  6. Cost of Living Adjustment • Pay attention to the definition of the CPI in class! • CPI in U.S. is what? • Cost of Living is measured by the CPI • Social Security and other wages are adjusted using CPI U.S. Department of LaborBureau of Labor Statistics http://www.bls.gov/cpi/ Financial Institutions & Markets, Day 4

  7. List of the Problems Four problems with using the CPI for a Perfect measure of a COLA • Substitution Bias • Introduction of new goods • Unmeasured quality changes • Typical Average Family Financial Institutions & Markets, Day 4

  8. Industrial Production & C.U. See the “downtick” in Industrial Production (often used for Real GDP because the numbers are reported monthly). Financial Institutions & Markets, Day 4

  9. Industrial Production & C.U. More evidence that the economy is beginning to “turn around,” as you can see from the pictures – the turn from down to up! http://www.nytimes.com/2009/09/17/business/economy/17econ.html?hpw Financial Institutions & Markets, Day 4

  10. Financial Institutions & Markets, Day 4 http://www.nytimes.com/2008/12/08/business/economy/08econ.html?th&emc=th

  11. Financial Institutions & Markets, Day 4 http://www.nytimes.com/2008/12/06/business/economy/06jobs.html?hp

  12. Financial Institutions & Markets, Day 4 http://www.nytimes.com/2008/12/06/business/economy/06idle.html?hp

  13. What have I Hammered ON in Class? • 3 Goals of any Macroeconomy • Full Employment • Economic Growth • Price Stability Sources: NYT and BLS – Sept. 16, 2009 http://www.nytimes.com/2009/09/17/business/economy/17econ.html?hpw Financial Institutions & Markets, Day 4

  14. Notice “They” always help me! • Whatever I Teach • The Markets help • The Fed helps • Actually, it really happens every single day! Mostly energy prices that have changed, although the prices of health care have also changed. See the Table for annual changed in EACH category as well. Sources: NY Times above with Labor report Financial Institutions & Markets, Day 4

  15. Problem Set #2 • TUTORIAL - Cheers • Let’s work on Problem Set #2 in class for a while at least. • U.S. Males around New Years call this College BOWL TIME • See ESPN BOWLING TIME!!! (College - American Football) Financial Institutions & Markets, Day 4

More Related