Go to the St. Louis Federal Reserve FRED database, and find data on the 30-year mortgage rate (MORTG), private residential fixed investment (PRFI), and the net percentage of bankers tightening credit standards on mortgages (DRTSPM). For the mortgage rate series, convert the data to Ã¢â¬ÅQuarterlyÃ¢â¬Â using the frequency setting, and download the data onto a spreadsheet. For each quarter, calculate the percentage change in residential investment from the same time one year prior.
a) Report the most recent rate on the 30-year mortgage, and the rate one year prior. Compare these numbers to the percentage change in residential investment from one year earlier, and comment on the relationship as it relates to the user cost of capital.
b) Using data from 2007:Q2 to the most recent data available, create a scatter plot with the net percentage of bankers tightening credit standards on the horizontal axis and the percent change in residential investment on the vertical axis. Comment on the relationship between the two variables.
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c) (Advanced) Using data from 2007:Q2 to the most recent data available, run a regression using the percentage change in residential investment as the dependent variable and the credit standards variable as the independent variable. Report the fitted equation, and comment on the goodness of fit. How does a 10-percentagepoint increase in credit tightening by banks affect residential investment growth?