Silver Prices an Economist Is in the Process of Developing a Developing

question 136

Essay

Silver Prices
An economist is in the process of developing a model to predict the price of silver.She believes that the two most important variables are the price of a barrel of oil (x₁)and the interest rate (x₂).She proposes the first-order model with interaction: y = β₀ + β₁x₁ + β₂x₂ + β₃x₁x₃ + ε.A random sample of 20 daily observations was taken.The computer output is shown below. THE REGRESSION EQUATION IS y = 115.6 + 22.3x₁ + 14.7x₂− 1.36x₁x₂ S = 20.9 R−Sq = 55.4% ANALYSIS OF VARIANCE ​ ​
-{Silver Prices Narrative} Is there sufficient evidence at the 1% significance level to conclude that the interest rate and the price of silver are linearly related?

---

Definitions:

Excess Reserves

Excess reserves refer to the capital reserves held by a bank or financial institution in excess of what is required by regulations, guidelines, or central bank requirements.

Individual Bank

A financial institution that deals with consumers and businesses to offer deposit, loan, and investment services on an individual basis.

Discount Rate

The cost in interest that commercial banks and similar storage institutions incur on borrowing from their regional Federal Reserve Bank’s loaning service.

Federal Reserve District Banks

The 12 banks that make up the Federal Reserve System, serving as the central banking system of the United States, each serving a specific geographic district.