Question: Please write as clear as possible and please answer all parts of the question thank you (3)Edgewood Co. has developed a regression model to forecast
Please write as clear as possible and please answer all parts of the question thank you
(3)Edgewood Co. has developed a regression model to forecast the percentage change in the value of the Mexican peso (et). The company believes the real interest rate differential (INT) and the inflation rate differential (INF) are the only factors that affect exchange rate movements. The following regression model was estimated with quarterly data for 15 periods. et = 0.001 - 0.9 INTt + 0.6 INF t-1 (3) Given that INFt-1 was 1%, a probability distribution had to be developed for INTt as follows: Probability Possible Outcome 20% -3% 50% -4% 30% -5% Find the expected value of the percentage change in the external value of the Peso, E (et) over the next month
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