Interest rates revisited. In given Exercise you investigated the federal rate on 3-month Treasury bills between 1950 and 1980. The scatterplot below shows that the trend changed dramatically after 1980, so we've built a new regression model for the data since 1980.
a) How does this model compare to the one in given Exercise?
b) What does this model estimate the interest rate to have been in 2000? How does this compare to the rate you predicted in Exercise?
c) Do you trust this newer predicted value? Explain.
d) Given these two models, what would you predict the interest rate on 3-month Treasury bills will be in 2020?
Exercise :
Interest rates. Here's a plot showing the federal rate on 3-month Treasury bills from 1950 to 1980, and a regression model fit to the relationship between the Rate (in %) and Years since 1950. (www.gpoaccess.gov/eop/)
a) What is the correlation between Rate and Year?
b) Interpret the slope and intercept.
c) What does this model predict for the interest rate in the year 2000?
d) Would you expect this prediction to have been accurate? Explain.