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

question 11

Multiple Choice

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 = .005; a₁ = .4; and a₂ = .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:

• A) 4.60%.
• B) -1.80%.
• C) 5.2%.
• D) -4.60%.
• E) none of the above

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