Question: The relationship between nominal exchange rate and relative prices. From annual observations from 1985 to 2005, the following regression results were obtained, where Y =

The relationship between nominal exchange rate and relative prices. From annual observations from 1985 to 2005, the following regression results were obtained, where Y = exchange rate of the Canadian dollar to the U.S. dollar (CD/$) and X = ratio of the U.S. consumer price index to the Canadian consumer price index; that is, X represents the relative prices in the two countries:

Ŷ_t = -0.912 + 2.250X_t r² = 0.440

se = 0.096

a. Interpret this regression. How would you interpret r²?
b. Does the positive value of X_t make economic sense? What is the underlying economic theory?
c. Suppose we were to redefine X as the ratio of the Canadian CPI to the U.S. CPI. Would that change the sign of X? Why?

Step by Step Solution

★★★★★

3.50 Rating (173 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a The slope value of 2250 suggests that over the period 19852005 for every unit increase in the rati... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (2 attachments)

1529_605d88e1cb0e5_656125.pdf

180 KBs PDF File

1529_605d88e1cb0e5_656125.docx

120 KBs Word File

Students Have Also Explored These Related Econometrics Questions!

Define the nominal exchange rate and the real exchange rate.

Define nominal exchange rate and real exchange rate. How are the two concepts related?

Suppose that there is a cost to carrying out transactions in the foreign exchange market. That is, to purchase one unit of foreign currency requires e(1 + a) units of domestic currency, where e is...

4. The relationship between nominal exchange rate and relative prices. From the annual observations from 1980 to 1994, the following regression results were obtained, where Y = exchange rate of the...

The relationship between nominal exchange rate and relative prices. From the annual observations from 1 9 8 0 to 1 9 9 4 , the following regression results were obtained, where Y = exchange rate of...

The relationship between nominal exchange rate and relative prices from the annual observation from 1980 to 1994, the following regression results were obtained, where Y= exchange rate of the German...

From annual observations from 1985 to 2005, the following regression results were obtained, where Y = exchange rate of the Canadian dollar to the U.S. dollar (CD/$) and X = ratio of the U.S. consumer...

Please summarise the work for easy understanding thank you The question is complete 8.1 (a) Using the data in Problem 7.1 (page 301), estimate a multiple regression model of the birth rate explained...

In a balanced three-phase wye-wye system, the load impedance is 10 + j1. The source has phase sequence abc and the line voltage Vab = 220

1. Dave earns $6,000 per month and is covered through his employer for Workers Compensation. Dave also has a private disability insurance policy with a benefit of $4,200 per month. The policy...

Since the late 1 9 8 0 s , Japanese interest rates have been lower than US interest rates. This differential has prompted several US real estate companies to borrow in to finance US developments. In...

6. Explain the Feds policy tools and briefly describe how each works.

Suppose that the data in a time-series study were entered in reverse chronological order. Would this change in any way the testing or adjusting for serial correlation? How? In particular: a. What...

In a 1988 article, Josef Brada and Ronald Graves built an interesting model of defense spending in the Soviet Union just before the breakup of that nation. The authors felt sure that Soviet defense...

Write the meaning of each of the follow terms without referring to the book (or your notes), and compare your definition with the version in the text for each. a. The BreuschPagan test b....

connect 4 . py

A number of people were asked how many days they would wait to seek medical treatment if they were suffering pain that interfered with their ability to work. The results are presented in the...

Requlred: Based on the Information in the table below, prepare comparative balance sheets for Windswept Woodworks, Incorporated for years 1 and 2 . (Round your answers to the nearest whole number.)