Run the following regression:
[BEIt – (INFL_SWAP_RATE)] = β0 + β1VIXt + β2UGAPt + β3%∆FOODt + β4%∆ENERGYt
a. Include a copy of YOUR regression results with the project. Make AND document any necessary improvements to your original regression results. Construct a 4×4 table with your explanatory spreads listed in each row and the answers to parts b, c, and d for the columns.
b. Comment on the coefficients signs and describe the relationships between the independent and explanatory variables of your final set of regression results. c. Carefully explain whether the relationships you found make intuitive economic sense.
d. Comment on the likelihood that any variable explains dependent variable movements.
e. Summarize the results. What factor(s) contribute to a non-zero [BEIt – (INFL_SWAP_RATE)] basis? What factor(s) is most likely to impede the FOMC’s ability to determine a reasonable gauge of inflation expectations when formulating its monetary policy strategy? Explain.
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