The Aurora city economist, I. C. Recession, uses the previous year’s growth in the money supply (in percent) to forecast the inflation rate (in percent) for Aurora. Using data for 35 years, Recession has built the following regression model (Y is inflation in percentage; X is money supply growth in percentage).
= -5.4 + 2.1X
sb = .007 Sy|x = 2.0 r2 = .99 = 3.2 sx = 3.0
Interpret this regression equation; then forecast next year’s inflation rate if the money supply grows by 8.2%. Place 90% confidence limits around this estimate. What is the probability that the rate of inflation will be over 15%?