Question

3a.       Is there evidence to reject the null hypothesis that the intercept coefficient is equal to 0 at the 5% level of significance? (Hint: you will need a table with the t distribution to determine the critical t.)

3b.       Is there evidence to reject the null hypothesis that the inflation differential coefficient (Inf h – Inf f) is equal to 1 at the 5% level of significance? (Hint: you will need a table with the t distribution to determine the critical t. You will not use the t Statistic given in the Excel output, because it corresponds to the null hypothesis that the inflation differential is equal to 0.)

3c.       Overall, is there any evidence inconsistent with the Purchasing Power Parity theory? (Hint: The answer to this questions is yes, if you can reject at least one of the two above null hypotheses.)

Regression Statistics
Multiple R	0.944392193
R Square	0.891876615
Adjusted R Square	0.855835487
Standard Error	0.004650234
Observations	5
ANOVA
	df	SS	MS	F	Significance F
Regression	1	0.000535126	0.000535126	24.74607916	0.015609229
Residual	3	6.4874E-05	2.16247E-05
Total	4	0.0006
	Coefficients	Standard Error	t Stat	P-value	Lower 95%
Intercept	-0.002751938	0.003300932	-0.833685033	0.465627737	-0.013256988
Inf h - Inf f	1.138565891	0.228878485	4.974543111	0.015609229	0.410171719

Answer 1

Question 3(a)

Here the p- value for intercept is 0.4656 so this is greater than 0.05 so we will fail to reject the null hypothesis and conclude that the intercept coefficient is not equal to 0 at the 5% level of significance.

Question 3(B)

Here test statistic

t = ( - 1)/se = (1.1385 - 1)/0.2289 = 0.605

Here t is less than t critical so we will fail to reject the null hypothesis and conclude that (Inf h – Inf f) is equal to 1 at the 5% level of significance.

3(c) As we are not able to reject the null hypothesis in any of the above cases. so,there is not any evidence inconsistent with the Purchasing Power Parity theory.