An attempt was made to evaluate the inflation rate as a predictor of the spot rate in the German treasury bill market. For a sample of 79 quarterly observations, the estimated linear regressionŷ = 0.0027 + 0.7916xwas obtained, wherey = actual change in the spot ratex = change in the spot rate predicted by the inflation rateThe coefficient of determination was 0.097, and the estimated standard deviation of the estimator of the slope of the population regression line was 0.2759.a. Interpret the slope of the estimated regression line.b. Interpret the coefficient of determination.c. Test the null hypothesis that the slope of the population regression line is 0 against the alternative that the true slope is positive, and interpret your result.d. Test, against a two-sided alternative, the null hypothesis that the slope of the population regression line is 1, and interpret your result.
An attempt was made to evaluate the inflation rate as a predictor of the spot rate in the German treasury bill market. For a sample of 79 quarterly observations, the estimated linear regression
ŷ = 0.0027 + 0.7916x
was obtained, where
y = actual change in the spot rate
x = change in the spot rate predicted by the inflation rate
The coefficient of determination was 0.097, and the estimated standard deviation of the estimator of the slope of the population regression line was 0.2759.
a. Interpret the slope of the estimated regression line.
b. Interpret the coefficient of determination.
c. Test the null hypothesis that the slope of the population regression line is 0 against the alternative that the true slope is positive, and interpret your result.
d. Test, against a two-sided alternative, the null hypothesis that the slope of the population regression line is 1, and interpret your result.
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