19. The following regression model was estimated to forecast the value of the Indian rupee (INR):

    INRt =a0 +a1INTt +a2INFt1 +t,

    where INR is the quarterly change in the rupee, INT is the real interest rate differential in period t between the U.S. and India, and INF is the inflation rate differential between the U.S. and India in the previous period. Regression results indicate coefficients of a0 = .003; a1 = .5; and a2 = .8. Assume that INFt 1 = 2%. However, the interest rate differential is not known at the beginning of period t and must be estimated. You have developed the following probability distribution:

Probability Possible Outcome

30% -2%

40% -3%

30% -4%

Find the expected change in the Indian rupee in period t