coefficient for the regression will be consistent with the relative purchasing

Coefficient for the regression will be consistent

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coefficient for the regression will be consistent with the relative purchasing power parity, as it would lead to a prediction of an appreciation of the Danish Krone. In the regression analysis, none of the coefficients from the three quarters are align with the relative purchasing power parity. Demark GDP Growth coefficient for the three analysis are 1.3206, 1.2777 and 1.7098. As the Denmark GDP growth coefficient is positive, it will lead to a appreciation of the Danish Krone as the demand of the Danish Krone increase when investors would like to buy Danish assets. A positive coefficient for the Denmark GDP Growth makes sense as you will expect the currency to appreciate when the country has a GDP Growth. South Africa GDP Growth coefficient for the three analysis are -0.5822, 2.4665 and -0.2371. As the South Africa GDP is higher, the Danish Krone should depreciate as the investor will prefer to invest in South Africa instead. Therefore, it will only make sense when the coefficient for the South Africa GDP Growth is negative. However, the four quarter regression analysis is not align with the belief, which could be due to other factors such as political risks. Interest Rate difference: Negative coefficient: positive appreciation of currency - consistent Positive coefficient: depreciation of the currency - inconsistent Inflation Rate difference: Negative coefficient: consistent with parity Africa always have higher inflation – Africa should depreciate – DKK should appreciate Denmark GDP Growth: Higher growth – appreciation of DKK South Africa GDP Growth: Higher growth – depreciation of DKK Forecasting Exchange Rates You now want to forecast the future exchange rate changes from 2018 Q3 to 2018 Q4 , 2019 Q3 , and 2021 Q3 . Use the economic data (i.e. inflation rates, interest rates, real GDP growth) for 2018 Q3 and the regression coefficients from your estimations above to make the forecasts.
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16. What is the expected change in exchange rates for 1 quarter? 0.006376595 17. What is the expected change in exchange rates for 1 year? 0.048220247 18. What is the expected change in exchange rates for 3 years? 0.120278233
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