31. Based on Exhibit 1, Olabudo should:

A. conclude that the inflation predictions are unbiased.

B. reject the null hypothesis that the slope coefficient equals 1.

C. reject the null hypothesis that the intercept coefficient equals 0.

Doug Abitbol is a portfolio manager for Polyi Investments, a hedge fund that trades in the United States. Abitbol manages the hedge fund with the help of Robert Olabudo, a junior portfolio manager.
Abitbol looks at economists’ inflation forecasts and would like to examine the relationship between the US Consumer Price Index (US CPI) consensus forecast and actual US CPI using regression analysis. Olabudo estimates regression coefficients to test whether the consensus forecast is unbiased. Regression results are presented in Exhibit 1. Additionally,

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EXHIBIT 1 Regression Output: Estimating US CPI Regression Statistics Multiple R 0.9929 R 0.9859 Standard error of estimate 0.0009 Observations 60 Coefficients Standard Error t-Statistic Intercept US CPI consensus forecast Notes: 0.0001 0.0002 0.5351 0.9830 0.0155 63.6239 1. The absolute value of the critical value for the t-statistic is 2.0 at the 5% level of significance. 2. The standard deviation of the US CPI consensus forecast is $x = 0.7539. 3. The mean of the US CPI consensus forecast is X = 1.3350. Olabudo calculates the 95 percent prediction interval of the actual CPI using a US CPI con- sensus forecast of 2.8. To conclude their meeting, Abitbol and Olabudo discuss the limitations of regression analysis. Olabudo notes the following limitations of regression analysis: Limitation 1: Public knowledge of regression relationships may negate their future usefulness. Limitation 2: Hypothesis tests and predictions based on linear regression will not be valid if regression assumptions are violated.