In March 1973, the world’s industrialized nations switched from fixed to floating exchange rates. To investigate the effects on international trade, a multiple regression equation was estimated using annual data on world trade and gross domestic product

(GDP) for the ten years preceding this change and for the ten years following the change:

where T = world trade index (1985 = 200); Y = world GDP index (1985 = 100); D = 0 in 1963–1972 and D = 1 in 1974–1983; and the standard errors are in parentheses.

a. Which of these four coefficients are statistically significant at the 5 percent level?

b. Interpret each of these estimated coefficients: 28.85, −314.91, 0.57, 5.04.

c. What happened to the relationship between world GDP and world trade after 1973?

Transcribed Image Text:

T= 28.85-314.91D+ 0.57Y+5.04DY, R2 = 0.977 (27.02) (51.38) (0.48) (0.71)