NorthBridge Capital is reviewing whether central bank policy rates move in line with inflation. The research team wants a simple statistical analysis using recent monthly macro data.
Use the data below to quantify and test the relationship between monthly inflation and the central bank policy interest rate. Treat inflation as the explanatory variable and interest rate as the response variable.
| Month | Inflation Rate (%) | Policy Interest Rate (%) |
|---|---|---|
| 1 | 2.1 | 2.4 |
| 2 | 2.3 | 2.5 |
| 3 | 2.5 | 2.7 |
| 4 | 2.8 | 2.9 |
| 5 | 3.0 | 3.1 |
| 6 | 3.4 | 3.5 |
| 7 | 3.6 | 3.7 |
| 8 | 3.9 | 4.0 |
| 9 | 4.1 | 4.2 |
| 10 | 4.4 | 4.5 |
| 11 | 4.6 | 4.8 |
| 12 | 4.9 | 5.0 |
Assume these 12 monthly observations are an independent sample for this exercise. Test significance at .