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Economics students participate in Fed Challenge competition

Youngsoo Bae, assistant professor of economics, taught the one-credit course associated with the competition the past two years.

For the second year, Lehigh’s budding economists participated in the College Fed Challenge held Nov. 5 in the Baltimore branch of the Federal Reserve Bank of Richmond.

The national competition is designed to teach students about the decision-making process of the U.S. Federal Open Market Committee (FOMC) and how it regulates the nation’s monetary policy.

Youngsoo Bae, assistant professor of economics, taught the one-credit course associated with the competition both this year and last.

“They learned a lot about finance, the international and domestic economy and they followed current events very carefully,” Bae says. “I think they also learned to present their opinions clearly.”

He says this year’s team improved on last year’s performance, in part, because they knew what to expect.

The team consisted of four presenters and two supporting members. Gianni Simplicio ’08, Christopher Bush ’10, Christopher Addy ’11 and Jacob Labret ’08 presented at the competition. Kristin Giglia ’10 and Brian Czornyj ’10 provided background material.

At the competition, the four presenters held a mock FOMC meeting to determine whether to raise, lower or to maintain the federal funds rate, the target interest rate at which banks lend federal funds to other banks. By regulating this rate, the Federal Reserve manipulates the U.S. economy’s money supply.

In a 20-minute presentation, team members advocated for or against a rate adjustment and then voted on a final decision. Afterwards, they spent 15 minutes answering questions posed by the judges, who were economic experts.

The real FOMC had dropped the interest rate to one percent—a historically low rate—six days prior to the contest, and the students were asked to consider dropping below that rate.

“There was no text book to consult here,” Labret, a finance and economics major, says. To prepare, the students combed through economic data, followed the shifting stocks and listened to news reports daily. The team bonded over their weekly and sometimes weekend meetings, Labret says.

In the end, they voted to maintain the current interest rate but to reconsider their decision if the market changed.

Bae says the team’s economic decision was considered in the ranking. “But the most important factor was how we supported and argued for our decision,” he says.

Bae plans to lead another team to next year’s competition. In addition to the competition, he hopes to take the team to see the Federal Reserve Bank of New York and the New York Stock Exchange.

“If I were to be here next year, I’d definitely do it again,” Simplicio, an economic and political science major, says.

--Becky Straw 

Posted on Tuesday, December 16, 2008

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