Probability Distribution of Forecasts Assume that the following regression model was applied to historical quarterly data:
Assume that the regression coefficients were estimated as follows:
Also assume that the inflation differential in the most recent period was 3 percent. The real interest rate differential in the upcoming period is forecasted as follows:
If Stillwater, Inc., uses this information to forecast the Japanese yen’s exchange rate, what will be the probability distribution of the yen’s percentage change over the upcoming period?