In addition to testing for purchasing power parity (PPP) by plotting individual points (combinations of interest rate differentials and changes in the spot rate of the "foreign" currency between two countries) on a graph, you can also test for PPP using regression analysis. In particular, consider the following regression model: es = a + a₁ (-1) +μ Where er is the percentage change in the foreign currency value, I is the inflation rate of the home currency, and I, is the inflation rate of the foreign currency. ao and a₁ are coefficients to be estimated, while μ is the error term. True or False: Results of this regression analysis will be the same, regardless of the base period chosen. True False Which of the following factors influence the exchange rate of a currency? Check all that apply. Changes in relative inflation rates Changes in relative interest rates Changes in government controls Changes in expectations of future exchange ra by only the Changes in relative income levels by more than just Because the exchange rate for a currency is influenced relative inflation, exchange rate movements be predicted entirely by PPP.

In addition to testing for purchasing power parity (PPP) by plotting individual points (combinations of interest rate differentials and changes in the spot rate of the "foreign" currency between two countries) on a graph, you can also test for PPP using regression analysis. In particular, consider the following regression model: es = a + a₁ (-1) +μ Where er is the percentage change in the foreign currency value, I is the inflation rate of the home currency, and I, is the inflation rate of the foreign currency. ao and a₁ are coefficients to be estimated, while μ is the error term. True or False: Results of this regression analysis will be the same, regardless of the base period chosen. True False Which of the following factors influence the exchange rate of a currency? Check all that apply. Changes in relative inflation rates Changes in relative interest rates Changes in government controls Changes in expectations of future exchange ra by only the Changes in relative income levels by more than just Because the exchange rate for a currency is influenced relative inflation, exchange rate movements be predicted entirely by PPP.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter4A: Problems In Applying The Linear Regression Model

Section: Chapter Questions

Problem 2E

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