A major national supplier of building materials for residential construction is concerned about total sales for next year. It is well known that the company's sales are directly related to the total national residential investment. Several New York bankers are predicting that interest rates will rise about two percentage points next year. You have been asked to develop a regression analysis that can be used to predict the effect of interest rate changes on residential investment. The time series data for this study are contained in the data file Macro2010, which is described in the Chapter 13 appendix.
a. Develop two regression models to predict residential investment, using the prime interest rate for one and the federal funds interest rate for the other. Analyze the regression statistics and indicate which equation provides the best predictions.
b. Determine the 95% confidence interval for the slope coefficient in both regression equations.
c. Based on each model, predict the effect of a twopercentage point increase in interest rates on residential investment.
d. Using both models, compute 95% confidence intervals for the change in residential investment that results from a two-percentage-point increase in interest rates.