forecast of inflation, Operation Management

Aman work at the Bank, to help customers, including retired people, to plan for the future.  Often the value of pensions does not keep up with inflation.  Hence retired people require a forecast of inflation.  One of the assertions is that changes in Federal Reserve policy can affect inflation.  

    Aman are given data on money and inflation. Money = average annual growth over 5 year periods, and inflation is average annual rate of inflation over 5 year periods.

Period End    Money       Inflation
 1965             9            1.6
1970            7.9            4.2
1975            11.5            8
1980            12            10.5
1985            11             7
1990            7              4.9
1995            2.8           3.8
2000            7.1            3
2005            10.1          2.7

     Do the data support a connection among the rate of enhance in the money supply and inflation?  Using the data on the growth rate of Money and inflation, run a regression of the rate of inflation on the rate of growth of the money supply.  Use Excel Data Analysis.

(1)    Interpret slope (What does the coefficient on the money supply variable tell you)?

(2)    Forecast inflation if money =   8

(3)    What is the meaning of the p-value? Is the regression coefficient significant?

(4)    Interpret the coefficient of determination

(5)     Is faster money growth always associated with higher inflation?

Posted Date: 3/21/2013 2:46:07 AM | Location : United States







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