Question

4. Use regression analysis in Excel to estimate the beta coefficient using the nominal interest rate as the dependent variable and inflation rate as an independent variable during 1987-2017, and interpret the meaning of estimated equation and beta coefficient.

Inflation Premium Rate	Nominal Interest Rate	Year
3.7	9.38	1987
4.1	9.71	1988
4.8	9.26	1989
5.4	9.32	1990
4.2	8.77	1991
3	8.14	1992
3	7.22	1993
2.6	7.97	1994
2.8	7.59	1995
2.9	7.37	1996
2.3	7.27	1997
1.6	6.53	1998
2.2	7.05	1999
3.4	7.62	2000
2.8	7.08	2001
1.6	6.49	2002
2.3	5.66	2003
2.7	5.63	2004
3.4	5.23	2005
3.2	5.59	2006
2.9	5.56	2007
3.8	5.63	2008
-0.4	5.31	2009
1.6	4.94	2010
3.2	4.64	2011
2.1	3.67	2012
1.5	4.23	2013
1.6	4.16	2014
0.1	3.89	2015

Answer 1

Answer:

The Summary report from using regression analysis in excel is as follows:

Beta coefficient = Slope = 0.951599213 = 0.9516

Intercept = 4.010504196 = 4.0105

The equation will be:

Y = 4.0105 + 0.9516X

Interpretation:

If Inflation premium = 0, then Nominal Interest = 4.01%

The beta coefficient of Nominal interest is 0.9516

This means for every 1% change in inflation premium, the nominal interest will change by 0.95%