What is the underlying economic theory

Assignment Help Microeconomics

Reference no: EM131024685

The relationship between nominal exchange rate and relative prices. From annual observations from 1985 to 2005, the following regression results were obtained, whereY=exchange rate of the Canadian dollar to the U.S. dollar (CD$) andX= ratio of the U.S. consumer price index to the Canadian consumer price index; that is, Xrepresents the relative prices in the two countries: Yˆt= -0.912+2.250Xtr2=0.440 se=0.096

a. Interpret this regression. How would you interpretr2?

b. Does the positive value ofXtmake economic sense? What is the underlying economic theory?

c. Suppose we were to redefineXas the ratio of the Canadian CPI to the U.S. CPI. Would that change the sign ofX? Why?

Reference no: EM131024685

Questions Cloud

What are fixed costs and variable costs of this company : What are fixed costs and variable costs of this company? Discuss the relationship between marginal physical product, average total costs and marginal costs using the specific information given about the company.

What is the market private savings function : There are 100 households in the economy. Half of these households save according to r = 2 + Sp/10 while the other half of the households save according to r = 5 + Sp/5 where each of these equations expresses the saving function for one household. ..

Identifying letter of its best description : In each blank next to the following terms, place the identifying letter of its best description.

Does this condition determine a b and c uniquely : Let G = C* be the multiplicative group of nonzero complex numbers. Is the map f: G --> G a homomorphism, provided f is given by i) f(z) = iz, ii) f(z) = z^2, iii) f(z) = |z|, iv) f(z) = z-bar? Justify your answer.

What is the underlying economic theory : Does the positive value ofXtmake economic sense? What is the underlying economic theory? Suppose we were to redefineXas the ratio of the Canadian CPI to the U.S. CPI. Would that change the sign ofX? Why?

What is the growth rate of private savings for spain : What is the growth rate of private savings for Spain from 2008 to 2009? Using the rule of 70 as an approximation, how long would it take for China to double its GDP at a constant GDP growth rate of 8%

Discuss the interaction of operating strategy : Discuss the interaction of operating strategy and capital structure decisions. What are the potential effects of financing on the NPV of the acquisition?

User Account

All Pages