# Construct a spreadsheet and prepare your data for running a regression analysis.

01 / 10 / 2021 Course Outcomes

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Part 1 (10 points) – (this exercise is related chapter 3 and chapter 10) Go to stats.oecd.org. On the left side, you will see macroeconomic data themes. Under Finance choose monthly financial statistics and then choose exchange rates. Then on the right side of query, you will see customize tab. There choose two major countries (non-US). Then choose frequency click on select latest data and set the number of quarters. Then view data. You will need to download this to excel in columns (you will need to transpose from rows to columns in excel). Then calculate percentage changes (% return) in each currency rate. Calculate average percentage change, standard deviation of changes and the correlation coefficient of the changes in two pairs. Construct an equally weighted portfolio of these currency pairs and find the portfolio return and risk (standard deviation). Calculate quarterly Value-at-Risk at 5% significance for each currency pair. Interpret your findings. Part 2 (20 points) (this exercise is related to chapter 8) Go to stats.oecd.org. Download quarterly data for currency rates (you have done it already on Part 1) and macro-economic variables. Construct a spreadsheet and prepare your data for running a regression analysis. Estimate the following regression for one of the currency pairs (make sure that to use a direct quotation with USD on one side) and discuss the results. Percentage Change in Foreign currency rate (t) = Intercept + b1* US GDP growth rate minus Foreign GDP growth rate (t) + b2* US CPI growth rate minus Foreign CPI growth rate (t) + b3*US Interest rate minus Foreign Interest rate (t) t indicates quarter. b1-b3 are the coefficients from your regression. For data, go to website stats.oecd.org. Then select national accounts on right side, then customize choosing your countries, measure, and time & frequency etc. Exchange rates You can download either from fx.oanda.com or from stats.oecd.org under monthly financial statistics (described above). US GDP growth rate minus Foreign GDP growth rate Quarterly growth rate of real GDP over the same quarter of previous year this is under national accounts and quarterly national accounts Consumer Prices Index under prices and purchasing power parities when customized select percentage change on the same period of previous year. Interest Rates Choose Short term interest rates under Monthly Financial Statistics and subject short term interest rates. You can also search for all these items on the left bar and narrow down your results. Then you will need to transpose your data to look like as below (extended to your data period): % Change in Foreign exchange rate (1 Foreign currency = how many USD) US GDP growth rate minus Foreign GDP growth rate US Consumer Price Index growth rate minus Foreign Consumer Price Index growth rate US Interest Rates minus Foreign Interest Rates Discuss the regression results (significance and economic meaning of each coefficient on your dependent variable, explanatory power of the model etc.). Explain why some variables are significant, if any, others not. All the relevant discussion will be made during the class. If you miss these classes, then you will need to refer to your statistics or regression class notes or online resources to understand how to run a regression in Excel and how to determine the significant of the coefficients.

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