Problem 2. Regression Analysis. (Hint: Topic 7_Part1.xlsx Regression) Lconomists have long believed that the greater the amount of mony printed, the higher the long-term interest rates. Evidence for this view can be found in the table below, which gives long-term government bond rates for 31 countries and the corresponding growth rate of money supply for each country Problem 2.1: Plot the data, and use a regression to find the relation between the money growth and the long term bond nterest rate Problem 2.2:If a country has zero money growth, what is its predicted long-term bond interest rater Problem 23: The monetary authorities in your country are considering increasing the money growth rate by 1% from its current level. Predict by how much this will increase the long-term bond interest rate. MONEY GROWTH AND BOND INTEREST RATES Average money growth Answer of Problem 2.1: Average long-term bond interest rate 7.4096 7.80% 8.22%, 10.36% 8.49% 7.20% 10.66% 7.31% 8.00% 4.54% 8.52% 6.16%, 10.38% 10.79% 12.72% 8.95% 8.81% 11.11% 15.57% 15.35% 9.40% 9.10% 16.53% 8.59% /.88% 10.62% 17.62% 12.01% 12.12% 13.17% 28.92% Country Period 1960:1-1998:1 1965:1-1997:1 1960:1-1997:1 1960:1-1998:1 1960:1-1997:1 1960:1-1998:1 1960:1-1997:1 1960:1 1997:1 1960:11998:1 1960:1-1998:1 1960:1-1998:1 1960:1-1998:1 1960:1-1996:1 1960:1-1997:1 1979:1-1997:1 1960:1-1998:1 1960: 1 1997:1 1960:1 1998:1 1983:1-1998:1 1962:1-1997:1 1983:1-1998:1 1967:1-1992:1 1974:1-1998:1 1981:1-1997:1 1960:1-1997:1 1976:11998:1 1981:1 1997:1 1968:1-1992:1 1981:1-1998:1 1979:1-1998:1 1984:1-1998:1 65% 6.82% 5.20% 9.43% US Austria Bel Denrnark France Germany Ita 8.00% 12.07% 7.89% 10.64% Norway Switzerland Canada 8.99% 9.07% 9.43% 12.91% 10.38% Ireland Port Spain Australia New Zealand South Africa 10.29% 14.14% 16.20% 19.88% 4.36% 12.14% 15.12% 15.55% 12.79% 10.86% 20.80% 13.49% 15.89% 12.90% 28.47% ras amaic Netherlands Antilles Trinidad &Tobago Korea Nepal Pakistan hailand Malawi Answer of Problem 2.2: Intercept of the regression Slope of the regression Money growth rate Estimated long term interest rate Solomon Islands Western Samoa Answer of Problem 2.3: A 1% increase in money growth rate should increase the long term interest rate by: Problem 2. Regression Analysis. (Hint: Topic 7_Part1.xlsx Regression) Lconomists have long believed that the greater the amount of mony printed, the higher the long-term interest rates. Evidence for this view can be found in the table below, which gives long-term government bond rates for 31 countries and the corresponding growth rate of money supply for each country Problem 2.1: Plot the data, and use a regression to find the relation between the money growth and the long term bond nterest rate Problem 2.2:If a country has zero money growth, what is its predicted long-term bond interest rater Problem 23: The monetary authorities in your country are considering increasing the money growth rate by 1% from its current level. Predict by how much this will increase the long-term bond interest rate. MONEY GROWTH AND BOND INTEREST RATES Average money growth Answer of Problem 2.1: Average long-term bond interest rate 7.4096 7.80% 8.22%, 10.36% 8.49% 7.20% 10.66% 7.31% 8.00% 4.54% 8.52% 6.16%, 10.38% 10.79% 12.72% 8.95% 8.81% 11.11% 15.57% 15.35% 9.40% 9.10% 16.53% 8.59% /.88% 10.62% 17.62% 12.01% 12.12% 13.17% 28.92% Country Period 1960:1-1998:1 1965:1-1997:1 1960:1-1997:1 1960:1-1998:1 1960:1-1997:1 1960:1-1998:1 1960:1-1997:1 1960:1 1997:1 1960:11998:1 1960:1-1998:1 1960:1-1998:1 1960:1-1998:1 1960:1-1996:1 1960:1-1997:1 1979:1-1997:1 1960:1-1998:1 1960: 1 1997:1 1960:1 1998:1 1983:1-1998:1 1962:1-1997:1 1983:1-1998:1 1967:1-1992:1 1974:1-1998:1 1981:1-1997:1 1960:1-1997:1 1976:11998:1 1981:1 1997:1 1968:1-1992:1 1981:1-1998:1 1979:1-1998:1 1984:1-1998:1 65% 6.82% 5.20% 9.43% US Austria Bel Denrnark France Germany Ita 8.00% 12.07% 7.89% 10.64% Norway Switzerland Canada 8.99% 9.07% 9.43% 12.91% 10.38% Ireland Port Spain Australia New Zealand South Africa 10.29% 14.14% 16.20% 19.88% 4.36% 12.14% 15.12% 15.55% 12.79% 10.86% 20.80% 13.49% 15.89% 12.90% 28.47% ras amaic Netherlands Antilles Trinidad &Tobago Korea Nepal Pakistan hailand Malawi Answer of Problem 2.2: Intercept of the regression Slope of the regression Money growth rate Estimated long term interest rate Solomon Islands Western Samoa Answer of Problem 2.3: A 1% increase in money growth rate should increase the long term interest rate by