Question
I am to construct a regression model to forecast the exchange rate, GBP/USD. Dependent variable is GBP/USD whereas the independent variables are differential in inflation
I am to construct a regression model to forecast the exchange rate, GBP/USD. Dependent variable is GBP/USD whereas the independent variables are differential in inflation and interest rate, UK US's trade balance and money supply, growth rate of UK and US.
My question is that for the differential in inflation and interest rate, should i take US inflation minus UK inflation or UK minus US's? The base currency is GBP, which means how much USD are needed to buy 1 GBP.
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Fundamentals Of Matrix Analysis With Applications
Authors: Edward Barry Saff, Arthur David Snider
1st Edition
111895369X, 9781118953693
