Modern interest rates. In Exercise 39 you investigated the federal rate on 3-month Treasury bills between 1950 and 1980. The scatterplot below shows that the trend changed dramatically after 1980, so we’ve built a new regression model that includes only the data since 1980

(from x = 30 and on in the plot below).

Dependent variable is: Rate R-squared = 78.3% s = 1.644 Variable Coeff Intercept 19.2024 Year-50 -0.30871

a) How does this model compare to the one in Exercise 39?

b) What does this model estimate the interest rate to have been in 2000? How does this compare to the rate you predicted in Exercise 39?

c) Do you trust this newer predicted value? Explain.

d) Given these two models, what would you predict the interest rate on 3-month Treasury bills will be in 2025?

Transcribed Image Text:

Rate (%) 12 6 9 9 3 + + + 30.0 37.5 45.0 + 52.5 60.0 Years since 1950