The following regression model was estimated to forecast the value of the Malaysian ringgit (MYR) : MYR_t = a₀ + a₁INC_t _- ₁ + a₂INF_t _- ₁ + $\mu$ _t,
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

Question

The following regression model was estimated to forecast the value of the Malaysian ringgit (MYR) : MYR_t = a₀ + a₁INC_t _- ₁ + a₂INF_t _- ₁ +

\mu

_t,
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

Quizplus · Accepted Answer

Plug in the values given into the regression equation and solve for MYR_t: MYR_t = 0.005 + 0.4(0.03 - F1F1F1S1F1F1F105%) + 0.7(F1F1F1S1F1F1F105%) MYR_t = 0.005 + 0.4(0.03 - (-5%)) + 0.7(-5%) MYR_t = 0.005 + 0.4(0.03 + 0.05) - 0.035 MYR_t = 0.018 - 0.035 MYR_t = F1F1F1S1F1F1F101.8% Therefore, the forecast for the percentage change in the ringgit is 1.8%. The correct answer is B.

The Following Regression Model Was Estimated to Forecast the Value μ\muμ

The Following Regression Model Was Estimated to Forecast the Value $\mu$