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    Performing and Interpreting Simple Regression and the Results

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    One of the assertions is that changes in Federal Reserve policy can affect inflation. Using the data on the growth rate of M2 and inflation in your spreadsheet, run a regression of the rate of inflation on the rate of growth of the money supply. Do the data support a connection between the rate of increase in the money supply and inflation? What does the coefficient on the money supply variable tell you? What is the meaning of the p-value and how is it used? Is the regression coefficient significant? Is faster money growth always associated with higher inflation? Explain your findings.

    Please use the coaching slides #9, 10, & 11 from the attached Power Point slides to solve the above question. Data file is attached below as well. Please provide detailed verbal explanations to all as I do not remember anything about regression and I need to explain it all myself.

    Thank you so much!

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    Solution Preview

    Do the data support a connection between the rate of increase in the money supply and inflation?

    No, the data does not support. We can first check the ANOVA table (from attached excel file). From the table, the p-value is 0.11 which is greater than significance level 0.05. Hence, the model that we build is not significant. Second, we can check the R square value from the excel output; the value is 0.33 which is very small. Only 33% ...

    Solution Summary

    The solution gives detailed steps on performing simple regression and then interpretating the results.