Abitbol looks at economists’ inflation forecasts and would like to examine the relationship between the US Consumer Price Index (US CPI) consensus forecast and the actual US CPI using regression analysis. Olabudo estimates regression coefficients to test whether the consensus forecast is unbiased. If the consensus forecasts are unbiased, the intercept should be 0.0 and the slope will be equal to 1.0. Regression results are presented in Exhibit 1. Additionally, Olabudo calculates the 95% prediction interval of the actual CPI using a US CPI consensus forecast of 2.8.
This is not hard. You are calculating the prediction interval which is like confidence interval except you are using the dependent variable (Y), so Y - (t criticalvalue) standard error to Y + (t criticalvalue) standard error.
In the last sentence of the text they say “Olabudo calculates the 95% prediction interval of the actual CPI using a US CPI consensus forecast of 2.8”
Now you will need to calculate the dependent variable using the independent variable given which is 2.8
So Y = 0.001 (the intercept) + 0.9830 (the slope) 2.8 (the independent variable) = 2.7525
Now use this to get the prediction interval
2.7525 - (2.002) 0.0009 to Y + (2.002) 0.0009 = 2.7506 to 2.7544
which is the A answer
Note that the tcritical value (2.002) and standard error of regression (0.0009) was given in the table.
Hope this helps. Let me know if you are still having problems.
