Question

where MYR is the quarterly change in the ringgit, INF is the previous quarterly percentage change in the inflation differential, and INC is the previous quarterly percentage change in the income growth differential. Regression results indicate coefficients of ɑ0 = .005; ɑ1 = .4; and ɑ2 = .7. The most recent quarterly percentage change in the inflation differential is –5 percent, while the most recent quarterly percentage change in the income differential is 3 percent. Using this information, the forecast for the percentage change in the ringgit is:

Answer 1

Percentage change in ringgit is -1.80%

Explanation:

Percentage change in Ringgit is given by the formula as a0 + (a1 × INCt-1) + (a2 × INFt-1) + ut

which can be equated as

0.50% + (0.4 × 3%) + (0.7 × -5%) +ut

= 0.50% + 1.20% - 3.50%

= -1.80%