The following regression model was estimated to forecast the percentage change in the Australian Dollar (AUD): AUD_t = a₀ + a₁INT_t + a₂INF_t _- ₁ +

\mu

_t,
Where AUD is the quarterly change in the Australian Dollar, INT is the real interest rate differential in period t between the U.S. and Australia, and INF is the inflation rate differential between the U.S. and Australia in the previous period. Regression results indicate coefficients of a₀ = .001; a₁ = -.8; and a₂ = .5. Assume that INF_t _- ₁ = 4%. However, the interest rate differential is not known at the beginning of period t and must be estimated. You have developed the following probability distribution:
$The following regression model was estimated to forecast the percentage change in the Australian Dollar (AUD): AUDt = a0 + a1INTt + a2INFt - 1 + \mu t, Where AUD is the quarterly change in the Australian Dollar, INT is the real interest rate differential in period t between the U.S. and Australia, and INF is the inflation rate differential between the U.S. and Australia in the previous period. Regression results indicate coefficients of a0 = .001; a1 = -.8; and a2 = .5. Assume that INFt - 1 = 4%. However, the interest rate differential is not known at the beginning of period t and must be estimated. You have developed the following probability distribution: There is a 20% probability that the Australian dollar will change by ____, and an 80% probability it will change by ____. A) 4.5%; 6.1%; B) 6.1%; 4.5% C) 4.5%; 5.3% D) None of the above$ There is a 20% probability that the Australian dollar will change by ____, and an 80% probability it will change by ____.
A) 4.5%; 6.1%;
B) 6.1%; 4.5%
C) 4.5%; 5.3%
D) None of the above

Assume That U

Multiple Choice

Correct Answer:VerifiedUnlock this answer nowGet Access to more Verified Answers free of chargeAccess For Free

Correct Answer:
Verified
Unlock this answer now
Get Access to more Verified Answers free of charge