The Impact of Money Supply on 90-Day US Treasury Bills
Develop a simple linear regression model using one independent variable to explain the short-term, “risk-free” rate or yield (i.e., 90-day U.S. Treasury bill) dependent variable. Use monthly data over a recent U.S. business cycle (e.g., 2002 to 2019). Provide an overview of the paper. State and justify the null and directional (when warranted) alternative hypothesis for the model. Consider selecting one independent variable from among monetary, fiscal, economic, financial, political, demographic and/or another factor you believe relevant. Do not use another interest rate as an independent variable for the first regression model. If your variable increases with time, such as the Consumer Price Index or the Money Supply, change the metric to an annual percent change from the prior year. Is the variable tested significant and consistent with the alternative hypothesis or merely “noise” in the market?
Compare (e.g., T-statistic, R-square, SER) the first simple regression model with a second model evaluating the same period of time (except for three-month lag) and same dependent variable using the implied three-month forward rate of interest computed by pure expectations (lagged three months) as the independent variable. Evaluate the term structure hypothesis best supported by the results of the second model to include the intercept and slope. Do your results support liquidity preference or pure expectations? Why?
Ensure you provide and assess simple or descriptive data for all dependent and independent variables used in the two regressions to include the three-month T-bill and independent variable selected for the first model and the three-month, six-month and forward T-bill rates derived for the second model. Present your findings in a report of approximately five pages (excluding tables, statistical output and/or graphs). Briefly provide a context of the economic and financial environment for the variables tested.
The Impact of Money Supply on 90-Day US Treasury Bills
Student's Name:
Institution:
Professor:
Unit Name & Number:
Date of Submission:
The Impact of Money Supply on 90-Day US Treasury Bills
1.0 Introduction
The interaction between money supply and Treasury bills in the US cannot be ignored since both affect each other. The US Federal Reserve often conducts open market operations (OMOs) to control the money supply. This involves buying or selling bonds and other securities. This study seeks to run a regression model to determine the impact of money supply on the 90-day US Treasury bill (Nyberg, 2012). The Fed may have different objectives while limiting or releasing the money into the economy.
This analysis is divided into the following sections: section one is the introduction. Section two represents the hypothesis. Section three represents the methodology applied, while section four represents the results and section five gives the conclusion.
2.0 Hypothesis Testing
H0: Money supply does not affect the 90-day Treasury bill
H1: Money supply affects the 90-day US Treasury bill.
3.0 Methodology
The study applies the simple regression analysis model to determine the impact of money supply on the 90-day US Treasury bill. The paper presents two models. Model 1 will regress the 90-day US Treasury bill against the money supply, i.e., the 90- day US Treasury bill is the dependent variable. In contrast, the money supply is taken as the independent variable. Model 2 will be analyzed using the lagged values of the money supply.
4.0 Results
Table 1: Descriptive statistics
M2_PCA
TB3MS
Mean
5.436604
2.703806
Median
5.72716
2.529167
Maximum
8.65616
7.493333
Minimum
1.02359
0.0325
Std. Dev.
2.105244
2.216995
Skewness
-0.593345
0.26465
Kurtosis
2.537743
1.83632
Jarque-Bera
2.027391
2.04289
Probability
0.362875
0.360074
Sum
163.0981
81.11417
Sum Sq. Dev.
128.5295
142.5369
Observations
30
30
Source: Author's computation using E-view software version 10
From the above table 1, the mean value of money supply is 5.4366, and the standard deviation is 2.1052. The minimum value is 1.0236, while the maximum value is 8.6562. The mean value for the US Treasury bill is 2.7038, and the standard deviation is 2.2170. The minimum value is 0.0325, while the maximum value is 7.4933. The money supply is negatively skewed as the skewness value is -0.5934, while the Treasury bill is positively skewed since the skewness value is 0.2647. The number of observations for the two variables is 30 with no missing item.
Model 1
Table 2: Regression analysis results of Treasury bill with the money supply
Variable
Coefficient
Std. Error
t-Statistic
Probability
M2_PCA
0.39506
0.083119
4.752946
0.0001
R-squared
-0.427033
Mean dependent var
2.703806
Adjusted R-squared
-0.427033
SD dependent var
👀 Other Visitors are Viewing These APA Essay Samples:
-
The Steinhoff Assets Misappropriation Scandal
5 pages/≈1375 words | No Sources | APA | Accounting, Finance, SPSS | Essay |
-
Company in Business and Intending to make a Profit
4 pages/≈1100 words | No Sources | APA | Accounting, Finance, SPSS | Essay |
-
Result of Audit Failure
1 page/≈275 words | No Sources | APA | Accounting, Finance, SPSS | Essay |