Mortgage Rates. The regression in Figure 4.24 is an attempt to develop an equation to fore...

Mortgage Rates. The regression in Figure 4.24 is an attempt to develop an equation to forecast mortgage rates. The explanatory variables include prime rate and the one through six-period lagged values of prime rate. The forecaster initially believed that prime rate in some of the past time periods and possibly the current time period may have an effect on mortgage rates. After examining the regression, the forecaster notes the small t statistics (large p values) for all the variables included in the regression and concludes that the regression is basically worthless: None of the variables included—current or lagged—are helpful in predicting mortgage rates. Do you agree or disagree? Justify your position.

FIGURE 4.24: Mortgage Rate and Prime Rate Regression.