Regression results taken directly from MS Excel indicate the following: Coeffici
ID: 1199847 • Letter: R
Question
Regression results taken directly from MS Excel indicate the following:
Coefficient Estimate
Standard Error
T stat
Intercept
0.66
0.11
6.00
Inflation Differential
0.45
0.30
1.50
Suppose that the critical t value is 1.7 or -1.7.
Do you have any evidence inconsistent with the Purchasing Power Parity theory? If there is evidence inconsistent with the Purchasing Power Parity theory, please show all evidence inconsistent with the Purchasing Power Parity theory.
Show all calculations to justify your answers to the questions above.
Coefficient Estimate
Standard Error
T stat
Intercept
0.66
0.11
6.00
Inflation Differential
0.45
0.30
1.50
Explanation / Answer
in this case since t stat is higher than the critical value for intercept term we have to reject the test statistics. I.e. coefficient of dpendent variable is not equal to interecpt term and not equal to 0. But for dependent variable test statistics is accepted so in this case we can assume that coefficient is 0.
Finally we can conclude from the regression result that dependent variable do not have any impact on purchasing power. So this result is inconsistent. Practically we can see that inflation differential has impact on purchasing power.
I think it will be better if we consider pirchasing power as independent variable and inflation differential as dependent.