Question

Go to the St. Louis Federal Reserve FRED database and find data on the percent of value of loans secured by collateral for all commercial and industrial loans (ESANQ) and the net percentage of domestic banks tightening standards for commercial and industrial loans to large and middle-market firms (DRTSCILM). Download the data into a spreadsheet.

a. Calculate the average, over the most recent four quarters and the four quarters prior to that, for the bank standards indicator and the “percent of loans secured by collateral” indicator. Do these averages behave as you would expect?

b. Use the Data Analysis tool in Excel to calculate the correlation coefficient for the two data series from 1997:Q3 to the most recent quarter of data available. What can you conclude about the relationship between collateral and bank C&I lending standards? Is this result consistent with efforts to reduce asymmetric information?

Short answer

a. Recent four fourth of security markers has expanded while bank indicator has diminished when contrasted with the earlier quarters.

b. The coefficient of correlation is 0.6.

Step-by-step solution

Content Introduction

Insurance marker alludes to the device to decide the liquidity and market movement by utilization of exchange data set. Bank standard the pointers screens for execution of business.

Explanation (Part a)

To identify the recent four quarters and past quarters of security markers and bank indicators.

Table addresses the normal of ongoing four quarters and past quarters of security markers and bank standard pointer.

Recent four fourth of security markers has expanded while bank standard pointer has diminished when contrasted with the earlier quarters. in this way, these pointers act in inverse bearing which were inverse to the assumptions.

Explanation (Part b)

The coefficient of correlation and whether it reduces the problem of asymmetric information.

Thus, the coefficient of correlation is 0.6. The relation between the series is positive and it reduces the problem of asymmetric information.

Coefficient of correlation is statistical tool used to determine the strength of relationship which is shared by two variables.