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Inflation Rate: Regression

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 29 quarterly observations the estimated linear regression

Y hat = 0.0027 + 0.791X

was obtained, where

Y = the 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 stanadrd deviation of the estimator of the slope of the regression line was 0.2759.

a. Interpret the regression results.

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 not equal to zero at the 5% significance level, and interpret you results.

d. Test the null hypothesis that the slope of the population regression line is 1 against the alternative the slope is not equal to 1, and interpret your results.

Solution Summary

This response interprets regression results and the coefficient of determination, as well as test the null hypothesis of the regression line.

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