Q. Table gives data on gold prices, the Consumer Price Index (CPI), and the New York Stock Exchange (NYSE) Index for the United States for the period 1974 –2006. The NYSE Index includes most of the stocks listed on the NYSE, some 1500-plus. a. Plot in the same scattergram gold prices, CPI, and the NYSE Index. b. An investment is supposed to be a hedge against inflation if its price and /or rate of return at least keeps pace with inflation. To test this hypothesis, suppose you decide to fit the following model, assuming the scatterplot in (a) suggests that this is appropriate: Gold pricet = β1 + β2 CPIt + ut NYSE indext = β1 + β2 CPIt + ut Note that if beta2 = 1 the response exactly grows with CPI
Q. Table gives data on gold prices, the Consumer Price Index (CPI), and the New York Stock Exchange (NYSE) Index for the United States for the period 1974 –2006. The NYSE Index includes most of the stocks listed on the NYSE, some 1500-plus. a. Plot in the same scattergram gold prices, CPI, and the NYSE Index. b. An investment is supposed to be a hedge against inflation if its price and /or rate of return at least keeps pace with inflation. To test this hypothesis, suppose you decide to fit the following model, assuming the scatterplot in (a) suggests that this is appropriate: Gold pricet = β1 + β2 CPIt + ut NYSE indext = β1 + β2 CPIt + ut Note that if beta2 = 1 the response exactly grows with CPI
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Q. Table gives data on gold prices, the Consumer Price Index (CPI), and the New York Stock Exchange (NYSE) Index for the United States for the period 1974 –2006. The NYSE Index includes most of the stocks listed on the NYSE, some 1500-plus.
a. Plot in the same scattergram gold prices, CPI, and the NYSE Index.
b. An investment is supposed to be a hedge against inflation if its price and /or rate of return at least keeps pace with inflation. To test this hypothesis, suppose you decide to fit the following model, assuming the
Gold pricet = β1 + β2 CPIt + ut
NYSE indext = β1 + β2 CPIt + ut
Note that if beta2 = 1 the response exactly grows with CPI
Thank you!
![TABLE 3.7 Consumer price indexes for major expenditure classes and NYSE
Index, 1974-2006
[For all urban consumers; 1982-84-100, except as noted]
Year
Gold Price
NYSE
CPI
1974
159.26
463.54
49.3
1975
161.02
483.55
53.8
1976
124.84
575.85
56.9
1977
147.71
567.66
60.6
1978
193.22
567.81
65.2
1979
306.68
616.68
72.6
1980
612.56
720.15
82.4
1981
460.03
782.62
90.9
1982
375.67
728.84
96.5
1983
424.35
979.52
99.6
1984
360.48
977.33
103.9
1985
317.26 1142.97
107.6
1986
367.66 1438.02
109.6
1987
446.46 1709.79
113.6
1988
436.94 1585.14
118.3
1989
381.44 1903.36
124
1990
383.51 1939.47
130.7
1991
362.11
2181.72
136.2
1992
343.82 2421.51
140.3
1993
359.77 2638.96
144.5
1994
384.00 2687.02
148.2
1995
384.17 3078.56
152.4
1996
387.77
3787.2
156.9
1997
331.02 4827.35
160.5
1998
294.24 5818.26
163
1999
278.88 6546.81
166.6
2000
279.11 6805.89
172.2
2001
274.04 6397.85
177.1
2002
309.73 5578.89
179.9
2003
363.38 5447.46
184
2004
409.72 6612.62
188.9
2005
444.74
7349
195.3
2006
603.46
8357.99
201.6
1 Includes alcoholic
beverages, not shown
separately.
2 December 1997=100.
3 Household fuels-gas
(piped), electricity, fuel oil,
etc. and motor fuel. Motor oil,
coolant, etc. also included
through 1982.
Note. Data beginning 1983
incorporate a rental
equivalence measure for
homeowners' costs.
Series reflect changes in
composition and renaming
beginning in 1998, and formula
and methodology changes
beginning in 1999.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F50fbc884-4de6-47bb-a045-4d2caa13a541%2Fe827092a-7d7e-4b80-8878-9b60ccaa4266%2Fk7ojd0u_processed.png&w=3840&q=75)
Transcribed Image Text:TABLE 3.7 Consumer price indexes for major expenditure classes and NYSE
Index, 1974-2006
[For all urban consumers; 1982-84-100, except as noted]
Year
Gold Price
NYSE
CPI
1974
159.26
463.54
49.3
1975
161.02
483.55
53.8
1976
124.84
575.85
56.9
1977
147.71
567.66
60.6
1978
193.22
567.81
65.2
1979
306.68
616.68
72.6
1980
612.56
720.15
82.4
1981
460.03
782.62
90.9
1982
375.67
728.84
96.5
1983
424.35
979.52
99.6
1984
360.48
977.33
103.9
1985
317.26 1142.97
107.6
1986
367.66 1438.02
109.6
1987
446.46 1709.79
113.6
1988
436.94 1585.14
118.3
1989
381.44 1903.36
124
1990
383.51 1939.47
130.7
1991
362.11
2181.72
136.2
1992
343.82 2421.51
140.3
1993
359.77 2638.96
144.5
1994
384.00 2687.02
148.2
1995
384.17 3078.56
152.4
1996
387.77
3787.2
156.9
1997
331.02 4827.35
160.5
1998
294.24 5818.26
163
1999
278.88 6546.81
166.6
2000
279.11 6805.89
172.2
2001
274.04 6397.85
177.1
2002
309.73 5578.89
179.9
2003
363.38 5447.46
184
2004
409.72 6612.62
188.9
2005
444.74
7349
195.3
2006
603.46
8357.99
201.6
1 Includes alcoholic
beverages, not shown
separately.
2 December 1997=100.
3 Household fuels-gas
(piped), electricity, fuel oil,
etc. and motor fuel. Motor oil,
coolant, etc. also included
through 1982.
Note. Data beginning 1983
incorporate a rental
equivalence measure for
homeowners' costs.
Series reflect changes in
composition and renaming
beginning in 1998, and formula
and methodology changes
beginning in 1999.
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