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The Beveridge curve

What’s new in FRED? Beyond the pie charts we saw on the blog a week ago, FRED also features scatter plots, like the one shown here. The classic scatter plot used in economic analysis is the Beveridge curve, which describes the dynamics of the labor market through the business cycles, with the unemployment rate on the horizontal axis and the job openings rate on the vertical axis. Thus, every point corresponds to the values of those two rates on a particular date, with the dates connected by a line.

As one would expect, when the unemployment rate is high, the job openings rate is low (and vice versa). If markets were perfectly fluid with perfectly adjustable wages, both rates would be zero. But there are all sorts of frictions, from rigidities in wages to spatial, sectoral, and competency mismatches between demand and supply of labor. These frictions typically generate a scatter plot that looks like a banana, as the markets react sluggishly to changing conditions. Because the current business cycle has been so long and continues even now, the line around the banana is not yet complete.

How this graph was created: Select the two series, the maximum time range, then choose “scatter” for the graph type. To connect the dots, choose a non-zero line width in the settings of the first series. That’s where you can also adjust the size of the dots.

Suggested by Christian Zimmermann

View on FRED, series used in this post: JTSJOR, UNRATE

Dating the financial crisis using fixed income market yield spreads

How would you answer the question, “When did the Great Financial Crisis begin?” Some date the beginning of the crisis according to the events surrounding the failure of Lehman Brothers in mid-September 2008. But at that point, financial markets had already been in turmoil for more than a year, as certain time series from the summer of 2007 show. So how do you date the crisis?

One way to date the recent financial crisis is to identify significant breaks in the dynamics of yield spreads from U.S. fixed income markets (thought to be at the core of the crisis) using appropriate statistical techniques, like I do in a forthcoming article (working paper version) along with coauthors Massimo Guidolin and Pierangelo De Pace. With a particular definition of financial crisis in mind, this procedure allows us to identify the weeks of August 3, 2007, and June 26, 2009, as the beginning and the end of the crisis, at least from the perspective of fixed income yield spreads.

While some of the spreads we use are based on proprietary data, several can be constructed from FRED data. In the graph, we plot the spread between Moody’s seasoned Aaa corporate bond yield and Moody’s seasoned Baa corporate bond yield, as well as the spread between the 30-year fixed-rate mortgage average in the United States and the 30-year Treasury constant maturity rate.

Even just eyeballing the graph gives a sense of the degree of comovement of these spreads at least for the period beginning in 2007. Moreover, the spreads show an upward shift in their level approximately in the second half of 2007 as well as a downward shift approximately in mid-2009.

How this graph was created: In FRED, enter “Moody’s” in the search box. This will return a few Moody’s series: I first selected the Baa corporate bond yield and then added the Aaa corporate bond yield. The spread is then the difference between the two: a-b. A similar transformation was applied to the 30-year Treasury constant maturity rate and the 30-year fixed-rate mortgage average in the United States.

Suggested by Silvio Contessi

View on FRED, series used in this post: AAA, BAA, DGS30, MORTGAGE30US

Who holds federal debt?

Yes. You’re seeing it right: FRED now features pie charts! This chart shows who holds federal debt, which excludes federal debt held within the federal government itself but includes debt held by local and state governments and public entities. Close to half is held by foreign investors, about a fifth by the Federal Reserve, and the rest by domestic investors. Unfortunately, the Treasury doesn’t specifically provide the amount of debt held by private domestic investors alone, so that has to be calculated, as shown here.

How this graph was created: Choose the series “Federal Debt Held by Federal Reserve Banks” and “Federal Debt Held by Foreign & International Investors.” Now, to create the series that shows only private domestic holders of federal debt, select “Federal Debt Held by Private Investors” and then use “Add data series, modify existing series” to include “Federal Debt Held by Foreign & International Investors.” Apply the data transformation a-b and then select graph type “pie,” which will default to the last observation.

Also: To see how the debt holdings have evolved, click on “customize” below the graph and change the graph settings to graph type “line,” “area” or “bar,” and then expand the date range. Set stacking to “percent” to see how the relative shares have evolved.

Suggested by Christian Zimmermann

View on FRED, series used in this post: FDHBFIN, FDHBFRBN, FDHBPIN

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