The following regression model was estimated by Delta Corporation to forecast the value of the Indian rupee (INR):
$$
I N R_{t}=a_{0}+a_{1} I N T_{t}+a_{2} I N F_{t-1}+\mu_{t}
$$
where INR is the quarterly change in the rupee, $ I N T $ is the real interest rate differential in period $ t $ between the U.S. and India, and $ I N F $ is the inflation rate differential between the U.S. and India in the previous period. Regression results indicate coefficients of $ a_{0}=.003 ; a_{1}=-.5 $; and $ a_{2}=.8 $. Assume that $ I N F_{t-1}=2 \% $. However, the interest rate differential is not known at the beginning of period $ t $ and must be estimated. Delta Corp. has developed the following probability distribution:

The expected change in the Indian rupee in period $ t $ is:
A) 3.40%.
B) 0.40%.
C) 3.10%.
D) 1.70%.
E) none of the above

Question

The following regression model was estimated by Delta Corporation to forecast the value of the Indian rupee (INR):
$$
I N R_{t}=a_{0}+a_{1} I N T_{t}+a_{2} I N F_{t-1}+\mu_{t}
$$
where INR is the quarterly change in the rupee, $ I N T $ is the real interest rate differential in period $ t $ between the U.S. and India, and $ I N F $ is the inflation rate differential between the U.S. and India in the previous period. Regression results indicate coefficients of $ a_{0}=.003 ; a_{1}=-.5 $; and $ a_{2}=.8 $. Assume that $ I N F_{t-1}=2 \% $. However, the interest rate differential is not known at the beginning of period $ t $ and must be estimated. Delta Corp. has developed the following probability distribution:

The expected change in the Indian rupee in period $ t $ is:
A) 3.40%. 
B) 0.40%. 
C) 3.10%. 
D) 1.70%. 
E) none of the above

Quizplus · Accepted Answer

The Answer of The following regression model was estimated by Delta Corporation to forecast the value of the Indian rupee (INR):
$$
I N R_{t}=a_{0}+a_{1} I N T_{t}+a_{2} I N F_{t-1}+\mu_{t}
$$
where INR is the quarterly change in the rupee, $ I N T $ is the real interest rate differential in period $ t $ between the U.S. and India, and $ I N F $ is the inflation rate differential between the U.S. and India in the previous period. Regression results indicate coefficients of $ a_{0}=.003 ; a_{1}=-.5 $; and $ a_{2}=.8 $. Assume that $ I N F_{t-1}=2 \% $. However, the interest rate differential is not known at the beginning of period $ t $ and must be estimated. Delta Corp. has developed the following probability distribution:

The expected change in the Indian rupee in period $ t $ is:
A) 3.40%. 
B) 0.40%. 
C) 3.10%. 
D) 1.70%. 
E) none of the above

The Following Regression Model Was Estimated by Delta Corporation to Forecast