In a well-written essay, explain what happened to the risk premium during the financial crisis in 2008 and how that affected private investment and if there were similarities in 2020 in the pandemic recession. Make sure to answer the following questions in your essay.
• Which of these interest rates does the Federal Reserve target directly and how did they respond to the financial crisis?
ECN327: Intermediate Macroeconomics, Summer 2021
• Which bond yields increased the most?
• What happened to the yield of the 10-yield Treasury bonds and why?
• If the BBB risk premium is defined as the difference between the BBB bond yields and the Treasury bond and the AAA risk premium is the difference between the AAA bond yields and the Treasury bonds, which increased more?
• How was real private investment affected in the financial crisis?
• Finally, were there any similarities in 2020 to the 2008 financial crisis? If so, what?