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The data for this exercise are available through the St. Louis Federal Reserve Bank at https://fred.stlouisfed.org/series/WTB3MS.
At the beginning of chapter 8, the events of May 1995, when the United States considered putting tariffs on imports of luxury cars from Japan. Specifically, on May 16, 1995, U.S. Trade Representative Mickey Kantor, announced that the United States would impose trade sanctions against Japan, targeting 13 Japanese import vehicles for 100-percent tariffs valued at $5.9 billion annually. Those targeted vehicles included all Lexus models and several Acura and Infiniti models.
To determine how U.S. interest rates reacted to this announcement, use the FRED database at the link referenced above and choose the weekly format.
a.) Adjust the graph to see what happened to the interest rate in the week including May 16, 1995. How does this movement in the interest rate compare with neighboring weeks, specifically the preceding week and the subsequent week? In your answer to this question, please include a copy of the graph.
b.) What type of retaliation by the government of Japan for the proposed tariff can explain this change in interest rates? Explain why Japanese retaliation would result in this change in interest rates.
c.) About one month later, President Clinton announced that the two countries had reached an agreement, which ended the threat of the tariffs being imposed. What happened to the interest rates during the month of June? In your answer to this question, please include a copy of the graph. Please explain why averting a trade war would have this effect on the movement of the interest rate.
