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Question : An economist examines the relationship between changes


An economist examines the relationship between changes in short-term interest rates and long-term interest rates. He believes that changes in short-term rates are significant in explaining long-term interest rates. He estimates the model Dlong = β0 + β1Dshort + ε, where Dlong is the change in the long-term interest rate (10-year Treasury bill) and Dshort is the change in the short-term interest rate (3-month Treasury bill). Monthly data from January 2006 through December 2010 (n = 60) were obtained from the St. Louis Federal Reserve’s website. A portion of the regression results is shown in the accompanying table.




An economist examines the relationship between changes in short-term interest -1


Use a 5% significance level to determine whether there is a linear relationship between Dshort and Dlong.