[Solution] The following regression was conducted for the inflation rate information and exchange rate of the British pound: e_BP=a_0+a_1(((1+I_US))/((1+I_B))-1)+μ
Question: The following regression was conducted for the inflation rate information and exchange rate of the British pound:
\[{{e}_{BP}}={{a}_{0}}+{{a}_{1}}\left( \frac{(1+{{I}_{US}})}{(1+{{I}_{B}})}-1 \right)+\mu \]Regression results indicate that \[{{a}_{0}}\] = 0 and \[{{a}_{1}}=0.50.\] Does purchasing power parity hold?
If not, does purchasing power parity overestimate or underestimate the exchange rate change during the period under examination.
Deliverable: Word Document 
(Solved) The following regression was conducted for the inflation
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