Dependent and Independent Variables
Linear regression forecasts the value of a dependent variable given the value of an independent variable. It assumes that there is a linear relationship between dependent and independent variables. A dependent variable is predicted by an independent variable and is…
Analytical Duration and Empirical Duration
Differences between Analytical Duration and Empirical Duration Analytical duration refers to estimating duration and convexity using mathematical formulas (as done in the previous learning objectives). Analytical duration approximates the effect of changes in benchmark yields on bond prices by assuming…
Covered Bonds
A covered bond is a type of senior debt obligation issued by a financial institution. It is usually backed by a segregated collection of assets consisting of commercial, public sector, or residential mortgages. The appropriate collateral and allowed structures in…
Compare Nominal and Real GDP and Calculate and Interpret the GDP Deflator
It is economically healthy to exclude the effect of general price changes when calculating the GDP. This is because higher (lower) income caused by inflation does not indicate a higher (lower) level of economic activity. Real GDP Economists describe real GDP…
Short-run Macroeconomic Equilibrium Above or Below Full Employment
Short-run macroeconomic equilibrium only occurs when the amount of real GDP demand equals the amount of GDP supply. On a graph, this happens at the point where the AD curve intersects the short-run average supply curve, exactly on the long-run…
Functions and Definitions of Money
Definitions of Money According to Growther, money refers to anything that is generally accepted as a means of exchange. What’s more, it is that which at the same time acts as a measure and store of value. John Maynard Keynes…
Perfect Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly
Market structure can be defined as the characteristics of a market, which can either be competitive or organizational. Moreover, market structure outlines the nature of the competition and the pricing procedure in a market. Therefore, it describes the number of…
Testing Independence based on Contingency Table Data
To test the relationship between two categorical variables, we use a contingency table and a test of independence based on a chi-square distribution. The test statistic is calculated as follows: $$\chi^{2}=\sum_{i=1}^{m} \frac{\left(O_{i j}-E_{i j}\right)^{2}}{E_{i j}}$$ Where : \(E_{i j}=\frac{(\text {…
Calculating the t-statistic for Hypothesis Testing on Correlation
The Spearman’s rank correlation coefficient is a non-parametric statistical test used to examine whether there is a significant relationship between two sets of data. Like the correlation coefficient, Spearman’s rank correlation can have any value between –1 and +1. A…
Hypothesis Test Concerning the Equality of the Population Means
Analysts are often interested in establishing whether there exists a significant difference between the means of two different populations. For instance, they might want to know whether the average returns for two subsidiaries of a given company exhibit a significant…
