Concept explainers
Banking Two Harvard economists studied countries’ relationships between the independence of banks and inflation rates from 1955 to 1990. The independence of banks was rated on a scale of –1.5 to 2.5, with –1.5, 0, and 2.5 corresponding to least, average, and most independence, respectively. The following table gives the values for various countries. (Source: Harvard University; The World Bank.)
Country |
Independence |
Rating |
New Zealand |
– 1.4 |
7.6 |
Italy |
–.75 |
7.2 |
Belgium |
.3 |
4.0 |
France |
.4 |
6.0 |
Canada |
.9 |
4.5 |
United States |
1.6 |
4.0 |
Switzerland |
2.2 |
3.1 |
(a) Obtain the least-squares line that fits these data.
(b) What relationship between independence of banks and inflation is indicated by the least-squares line?
(c) Japan has a .6 independence rating. Use the least-squares line to estimate Japan’s inflation rate.
(d) The inflation rate for Britain is 6.8. Use the least-squares line to estimate Britain’s independence rating.
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