Posted: September 16th, 2016

Estimate the model to predict the exchange rate. How much of the variation in the exchange rate is explained by your model? Is this statistically significant?

CASE STUDY ONE – continued

In this section, you will estimate a simple linear regression model to fit the exchange rate. From Assignment One, choose the input variable that has the strongest correlation with the exchange rate that you believe will produce a good model (this is the variable that we called “PREDICTOR”).

Following on from Assignment One, use the same data set and a level of significance of  = 0.05 for all tests in this study.

(a) Draw the scatter diagram for these two variables. (2 marks)
(b) Estimate the model to predict the exchange rate. How much of the variation in the exchange rate is explained by your model? Is this statistically significant? Test to see whether the intercept is required in your model. (4 marks)

(c) Obtain a graph of the residuals vis-á-vis the independent variable for part (b). Is there any evidence of problems?