We are interested in measuring the effect of inflation rate (X) on TBILL interes

Question

We are interested in measuring the effect of inflation rate (X) on TBILL interest rates (Y). Data for 14 years are showed below: Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 INFLATION 2.53 3.32 1.7 1.61 2.68 3.38 1.55 2.37 1.87 3.25 3.41 2.54 4.08 0.09 TBILL 5.56 5.08 5.18 4.83 4.75 5.9 3.34 1.68 1.05 1.58 3.39 4.81 4.44 1.62 Compute X with bar on top NOTE: WRITE YOUR ANSWER USING 2 DECIMAL DIGITS. DO NOT ROUND UP OR DOWN.

Compute the predicted TBILL rate if the inflation rate is 2.5

Explanation / Answer

The above table is given for analysis in Question.

Q1. Compute X with bar on top?

The independent variable is Inflation or X variable and the dependent variable is TBILL or Y variable.

So X bar ( Mean of X) = Sum of X column / 14

         = 34.38/14

        = 2.455714

Q2. Compute the predicted TBILL rate if the inflation rate is 2.5?

After run the regression in excel we got the below result. In our case the equation is

Y (TBILL) = a+bX(inflation)

In this result we get the intercept (a) and slope of the coefficient (b)

   Intercept = 2.420070751 and slope = 0.562216681

So the equation will be Y(TBILL) = 2.420070751+0.562216681(X)

But the question mentioned that if the inflation rate is 2.5 then what is the predicted TBILL

So we put the inflation value means X value which is 2.5 in the above equation

Y(TBILL) = 2.420070751+0.562216681(X)

Y(TBILL) = 2.420070751+0.562216681(2.5)   

              = 3.825612454

So the predicted YBILL is 3.825612454.

SUMMARY OUTPUT

Regression Statistics

Multiple R

0.346631053

R Square

0.120153087

Adjusted R Square

0.046832511

Standard Error

1.637273871

Observations

14

ANOVA

df

SS

MS

F

Significance F

Regression

1

4.392904129

4.392904

1.638736

0.224692046

Residual

12

32.16798873

2.680666

Total

13

36.56089286

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Intercept

2.420070751

1.163905168

2.079268

0.0597

-0.115860757

4.956002

Inflation

0.562216681

0.439186715

1.280131

0.224692

-0.394688968

1.519122

Q3. Compute the explained sum of squares ESS

Ans:- In the above result table the Bold mark number is the explained sum of square (ESS) which is 4.392904129.

Year Inflation(X) TBILL(Y) 1995 2.53 5.56 1996 3.32 5.08 1997 1.7 5.18 1998 1.61 4.83 1999 2.68 4.75 2000 3.38 5.9 2001 1.55 3.34 2002 2.37 1.68 2003 1.87 1.05 2004 3.25 1.58 2005 3.41 3.39 2006 2.54 4.81 2007 4.08 4.44 2008 0.09 1.62

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.