The following regression model was estimated to forecast the value of the Malaysian ringgit (MYR) :
MYRt = a0 + a1INCt -1 + a2INFt -1 + mt,
Where MYR is the quarterly change in the ringgit, INF is the previous quarterly percentage change in the inflation differential, and INC is the previous quarterly percentage change in the income growth differential. Regression results indicate coefficients of a0 = 0.005; a1 = 0.4; and a2 = 0.7. The most recent quarterly percentage change in the inflation differential is -5%, while the most recent quarterly percentage change in the income differential is 3%. Using this information, the forecast for the percentage change in the ringgit is
A) 4.60%.
B) -1.80%.
C) 5.2%.
D) -4.60%.
E) None of the above
Correct Answer:
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