The following regression analysis was conducted for the inflation rate information and exchange rate of the British pound: Regression results indicate that a₀ = 0 and a₁ = 1. Therefore:

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The regression results indicate that the coefficient on the lagged exchange rate (₀) is zero and the coefficient on the lagged inflation rate (₁) is one. This implies that, according to purchasing power parity, the exchange rate should adjust in a one-to-one relationship with changes in inflation rates. Therefore, purchasing power parity holds.

The Following Regression Analysis Was Conducted for the Inflation Rate