Explanation:
Economic news is said to be long-lived if it changes the market's view of the economy many years in the future. For example, news of a technological innovation that raises productivity would be a relatively long-lived shock to the system. Economic news is said to be short-lived if it changes the market's view of the economy in the near but not for future.
Things to Remember
The term structure model suggests that short-term rates are influenced by the fluctuations in the economic and financial conditions, while long-term rates are less susceptible to market shocks.
Long-lived news refers to information that alters the market's perception of the economy for many years into the future. This could be due to a significant event such as a technological innovation that boosts productivity, leading to a long-term impact on the economy.
Short-lived news changes the market's view of the economy in the near future but does not have a lasting impact. This could be due to temporary factors such as seasonal changes, short-term policy changes, or other transient events.
The impact of the news on the economy's perception is directly related to its longevity, with long-lived news having a more prolonged effect and short-lived news having a more immediate but temporary impact.
Short-lived news can also impact long-term instruments and securities, albeit temporarily, depending on the nature of the news and the market conditions. Therefore, the impact of the news on instruments and securities is not strictly confined to their term lengths.
Ultimate access to all questions.
No comments yet.
Q.1669 Using the term structure model, short-term rates are impacted by the changes in the economic and financial conditions of the markets. Long-term rates are less likely to be impacted by shocks in the market, but these incidents largely impact short-term rates. Regardless of the changes, the short-term change is assumed to arrive at long-term goals. Which of the following is correct regarding short-lived and long-lived news?
A
The news is short-lived if it changes the market's view of the economy many years in the future; it is long-lived if it changes the market's view of the economy in the near future.
B
News is long-lived if it changes the market's view of the economy many years in the future; it is short-lived if it changes the market's view of the economy in the near future.
C
Both types of news impact the economy in short term or long term irrespective of the types of news.
D
Long-lived news impact long-term instruments and projects while short-lived news only impact short-term instruments and securities.