The Following Regression Was Conducted for the Exchange Rate of the British

question 21

Multiple Choice

The following regression was conducted for the exchange rate of the British pound (BP) : Regression results indicate that a₀ = 0 and a₁ = 2. Therefore:

• A) purchasing power parity holds.
• B) purchasing power parity overestimated the exchange rate change during the period under examination.
• C) purchasing power parity underestimated the exchange rate change during the period under examination.
• D) purchasing power parity will overestimate the exchange rate change of the British pound in the future.

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Definitions:

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