Now use Excel to do a regression of the inflation rate (X) on the percent changes in stock market indices (Y). Include the data from all eighteen countries, including Japan. Use a significance of .05. Interpret your results (R-square, regression coefficient, and p-value). How would inflation in a foreign country affect the value of foreign profits for a U.S. investor? Explain your answer.

Selected Economic Statistics for 2005 and 2006 by Country*

Country
Australia
Belgium
Canada
France
Germany
Indonesia
Italy
Japan
Malaysia
Mexico
Netherlands
Singapore
Spain
Sweden
Switzerland
Thailand
United Kingdom
United States

2005
Market
Index**
312.5
321.2
369.4
273.3
224.3
79.0
213.8
113.5
119.5
360.1
309.6
176.3
288.6
378.3
452.5
76.7
217.6
302.4

2006
Market
Index
400.6
427.5
425.7
365.7
302.8
128.0
280.6
115.8
158.9
501.0
401.8
249.4
422.1
542.6
577.6
81.3
278.3
343.2

2005
Interest
Rates***
5.46
2.02
2.73
2.03
2.03
6.78
2.17
0.01
2.48
9.20
2.02
2.04
2.19
1.72
0.71
2.62
4.55
3.15

* Source: U.S. Census Bureau and United Nations
** Dow-Jones World Stock Index
*** Treasury Bill Rates, if NA Money Market Rates Used

2006
2006
Per
Interest
Capita GNI
Rates
1000's $
5.81
35.86
2.73
38.46
4.03
36.65
3.05
36.56
3.08
36.81
9.18
1.42
3.18
31.99
0.12
38.63
3.23
5.62
7.19
7.83
3.07
43.05
2.95
28.73
3.26
27.34
1.75
43.53
1.36
58.05
4.64
3.05
4.65
40.56
4.72
44.71

2006
2006
% Change % Change
Inflation Unemploy- in Market in Interest
Rate
ment Rate
Indices
Rates
3.5
4.8
28.19
6.41
1.8
8.2
33.09
35.15
2.0
6.3
15.24
47.62
1.6
9.2
33.81
50.25
1.7
9.8
35.00
51.72
13.1
NA
62.03
35.40
2.1
6.8
31.24
46.54
0.2
4.1
2.03
1100.00
3.6
NA
32.97
30.24
3.6
NA
39.13
-21.85
1.1
3.9
29.78
51.98
1.4
NA
41.46
44.61
3.5
8.5
46.26
48.86
1.4
7.0
43.43
1.74
1.1
4.0
27.65
91.55
4.6
NA
6.00
77.10
3.2
5.3
27.90
2.20
3.2
4.6
13.49
49.84