5202 both suggest that the co efficient for South Africa GDP Growth is

5202 both suggest that the co efficient for south

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0.5202 both suggest that the co-efficient for South Africa GDP Growth is insignificant. In the four quarter forecasting horizon, none of the predictors are statistically significant. Interest rate different is not statistically significant as the t-stat of -0.3548 is less extreme than -1.96 and 1.96 and the p-value of 0.8255 is larger than 0.05. Inflation rate difference is also not statistically significant as the t-stats of 0.9730 falls between -1.96 and 1.96 and p-value of 0.3341 is bigger than 0.05. Where the Denmark GDP Growth and South Africa GDP Growth is also not statistically significant as the t-stats of 1.6786 and 1.8604 is between -1.96 and 1.96 and the p-value of 0.4493 and 0.1895 is more than 0.05. However, in the 12 quarter forecasting horizon, at the 95% confidence level, Inflation rate differential is statistically significant. The t-stat for Inflation rate differential is 5.4574 which falls into the rejection zone and p-value of 0.000 which is less than 0.05 enforces on the significance of the coefficient for inflation rate differential. Interest Rate difference is statistically insignificant as the t- stat of 0.6023 falls between -1.96 and 1.96 and p-value of 0.5493 is larger than 0.05. Denmark GDP Growth is insignificant as the t-stat of 0.7436 is between -1.96 and 1.96 and p-value of 0.7436 is larger than 0.05. South Africa GDP Growth also insignificant as it has a t-stat of -0.0944 and p-value of 0.9251. 15. Do the signs of the coefficients make sense? The Interest Rate difference coefficients in the one quarter, four quarter and 12 quarter horizons are 1.4049, -0.8164 and 1.6656. Since the value as at September 2018 is negative, which indicates that the South Africa’s interest rate is higher than Denmark’s interest rate. According to Interest Rate
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Parity, the currency with the higher interest rate should depreciate. In this case, South Africa has the higher interest rate and the Danish Krone should depreciate. A negative coefficient will make the coefficient consistent with the interest rate parity as it would lead to a prediction of a appreciation of the Danish Krone. In the analysis, only the four quarter coefficient for the regression is align with the Interest Rate Parity. The Inflation Rate difference coefficients in the one quarter, four quarter and 12 quarter horizons are 0.0636, 0.9451 and 6.6366. The Inflation Rate difference is negative as at September 2018, which indicates the inflation rate in South Africa is higher than Denmark. According to the Relative Purchasing Power Parity, the currency with the higher inflation rate should depreciate, in this case the South African Rand should depreciate, and the Danish Krone should appreciate. A negative
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