Ken Black QA 5th Chapter17 Solution

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Chapter 17: Time Series Forecasting and Index Numbers

Chapter 17
Time-Series Forecasting and Index Numbers
LEARNING OBJECTIVES
This chapter discusses the general use of forecasting in business, several tools that are
available for making business forecasts, and the nature of time series data, thereby
enabling you to:
1.
2.
3.
4.
5.
6.
7.

Gain a general understanding time series forecasting techniques.


Understand the four possible components of time-series data.
Understand stationary forecasting techniques.
Understand how to use regression models for trend analysis.
Learn how to decompose time-series data into their various elements and to
forecast by using decomposition techniques
Understand the nature of autocorrelation and how to test for it.
Understand autoregression in forecasting.

CHAPTER TEACHING STRATEGY


Time series analysis attempts to determine if there is something inherent in the
history of a variable that can be captured in a way that will help business analysts forecast
the future values for the variable.
The first section of the chapter contains a general discussion about the various
possible components of time-series data. It creates the setting against which the chapter
later proceeds into trend analysis and seasonal effects. In addition, two measurements of
forecasting error are presented so that students can measure the error of forecasts
produced by the various techniques and begin to compare the merits of each.

Chapter 17: Time Series Forecasting and Index Numbers

A full gamut of time series forecasting techniques has been presented


beginning with the most nave models and progressing through averaging models and
exponential smoothing. An attempt is made in the section on exponential smoothing to
show the student, through algebra, why it is called by that name. Using the derived
equations and a few selected values for alpha, the student is shown how past values and
forecasts are smoothed in the prediction of future values. The more advanced smoothing
techniques are briefly introduced in later sections but are explained in much greater detail
on WileyPLUS.
Trend is solved for next using the time periods as the predictor variable. In this
chapter both linear and quadratic trends are explored and compared. There is a brief
introduction to Holts two-parameter exponential smoothing method that includes trend.
A more detailed explanation of Holts method is available on WileyPLUS. The trend
analysis section is placed earlier in the chapter than seasonal effects because finding
seasonal effects makes more sense when there are no trend effects in the data or the trend
effect has been removed.
Section 17.4 includes a rather classic presentation of time series decomposition
only it is done on a smaller set of data so as not to lose the reader. It was felt that there
may be a significant number of instructors who want to show how a time series of data
can be broken down into the components of trend, cycle, and seasonality. This text
assumes a multiplicative model rather than an additive model. The main example used
throughout this section is a database of 20 quarters of actual data on Household
Appliances. A graph of these data is presented both before and after deseasonalization so
that the student can visualize what happens when the seasonal effects are removed. First,
4-quarter centered moving averages are computed which dampen out the seasonal and
irregular effects leaving trend and cycle. By dividing the original data by these 4-quarter
centered moving averages (trend cycle), the researcher is left with seasonal effects and
irregular effects. By casting out the high and low values and averaging the seasonal
effects for each quarter, the irregular effects are removed.
In regression analysis involving data over time, autocorrelation can be a problem.
Because of this, section 17.5 contains a discussion on autocorrelation and autoregression.
The Durbin-Watson test is presented as a mechanism for testing for the presence of
autocorrelation. Several possible ways of overcoming the autocorrelation problem are
presented such as the addition of independent variables, transforming variables, and
autoregressive models.
The last section in this chapter is a classic presentation of Index Numbers. This
section is essentially a shortened version of an entire chapter on Index Numbers. It
includes most of the traditional topics of simple index numbers, unweighted aggregate
price index numbers, weighted price index numbers, Laspeyres price indexes, and
Paasche price indexes.

Chapter 17: Time Series Forecasting and Index Numbers

CHAPTER OUTLINE
17.1 Introduction to Forecasting
Time Series Components
The Measurement of Forecasting Error
Error
Mean Absolute Deviation (MAD)
Mean Square Error (MSE)
17.2 Smoothing Techniques
Nave Forecasting Models
Averaging Models
Simple Averages
Moving Averages
Weighted Moving Averages
Exponential Smoothing
17.3 Trend Analysis
Linear Regression Trend Analysis
Regression Trend Analysis Using Quadratic Models
Holts Two-Parameter Exponential Smoothing Method
17.4 Seasonal Effects
Decomposition
Finding Seasonal Effects with the Computer
Winters Three-Parameter Exponential Smoothing Method
17.5 Autocorrelation and Autoregression
Autocorrelation
Ways to Overcome the Autocorrelation Problem
Addition of Independent Variables
Transforming Variables
Autoregression
17.6 Index Numbers
Simple Index Numbers
Unweighted Aggregate Price Indexes
Weighted Price Index Numbers
Laspeyres Price Index
Paasche Price Index

Chapter 15: Forecasting and Time Series

KEY TERMS
Autocorrelation
Autoregression
Averaging Models
Cycles
Cyclical Effects
Decomposition
Deseasonalized Data
Durbin-Watson Test
Error of an Individual Forecast
Exponential Smoothing
First-Difference Approach
Forecasting
Forecasting Error
Index Number
Irregular Fluctuations
Laspeyres Price Index
Mean Absolute Deviation (MAD)
Mean Squared Error (MSE)

Moving Average
Nave Forecasting Methods
Paasche Price Index
Seasonal Effects
Serial Correlation
Simple Average
Simple Average Model
Simple Index Number
Smoothing Techniques
Stationary
Time-Series Data
Trend
Unweighted Aggregate Price
Index Number
Weighted Aggregate Price
Index Number
Weighted Moving Average

SOLUTIONS TO PROBLEMS IN CHAPTER 17


17.1

Period
1
2
3
4
5
6
7
8
9
Total

MAD =

MSE =

e
2.30
1.60
-1.40
1.10
0.30
-0.90
-1.90
-2.10
0.70
-0.30

2.30
1.60
1.40
1.10
0.30
0.90
1.90
2.10
0.70
12.30

no . forecasts

no . forecasts

12 .30
9

= 1.367

20 .43
9

= 2.27

e2
5.29
2.56
1.96
1.21
0.09
0.81
3.61
4.41
0.49
20.43

Chapter 17: Time Series Forecasting and Index Numbers

17.2

Period Value F
1
202
2
191 202
3
173 192
4
169 181
5
171 174
6
175 172
7
182 174
8
196 179
9
204 189
10
219 198
11
227 211
Total

MAD =

MSE =

17.3

no . forecasts

no . forecasts

121
361
144
9
9
64
289
225
441
256
1919

125 .00
10

1,919
10

= 12.5

= 191.9

e2

19.4 16.6 2.8


23.6 19.1 4.5
24.0 22.0 2.0
26.8 24.8 2.0
29.2 25.9 3.3
35.5 28.6 6.9
Total
21.5

2.8
4.5
2.0
2.0
3.3
6.9
21.5

7.84
20.25
4.00
4.00
10.89
47.61
94.59

MAD =

MSE =

Year
1

e2

-11
11
-19
19
-12
12
-3
3
3
3
8
8
17
17
15
15
21
21
16
16
35 125

Period Value F
1
2
3
4
5
6

17.4

e
2 . 51
= 3.583
=
N o F. o r e c a s t6 s

e2
9 . 54 9
= 15.765
=
N o F. o r e c a s t6 s

Acres
140,000

Forecast
-

e
-

e2
-

Chapter 17: Time Series Forecasting and Index Numbers

2
3
4
5
6
7
8
9
10
11

141,730
134,590
131,710
131,910
134,250
135,220
131,020
120,640
115,190
114,510
Total
MAD =

140,000
141,038
137,169
133,894
132,704
133,632
134,585
132,446
125,362
119,259

1730
-6448
-5459
-1984
1546
1588
-3565
-11806
-10172
-4749
-39,319

1730
6448
5459
1984
1546
1588
3565
11806
10172
4749
49047

2,992,900
41,576,704
29,800,681
3,936,256
2,390,116
2,521,744
12,709,225
139,381,636
103,469,584
22,553,001
361,331,847

e
4 , 90 4 7
= 4,904.7
=
N o F. o r e c a s t 1 s 0

e2
3 6, 3 1 3, 8 1 4 7
MSE =
= 36,133,184.7
=
N o F. o r e c a s t s 1 0

17.5

a.)

b.)

4-mo. mov. avg.


44.75
52.75
61.50
64.75
70.50
81.00

error
14.25
13.25
9.50
21.25
30.50
16.00

4-mo. wt. mov. avg. error


53.25
5.75
56.375
9.625
62.875
8.125
67.25
18.75
76.375
24.625
89.125
7.875

Chapter 17: Time Series Forecasting and Index Numbers

c.)

difference in errors
14.25 - 5.75 = 8.5
3.626
1.375
2.5
5.875
8.125

In each time period, the four-month moving average produces greater errors of
forecast than the four-month weighted moving average.

17.6

Period
1
2
3
4
5
6
7
8

Value
211
228
236
241
242
227
217
203

F( =.1)

Error

211
213
215
218
220
221
221

23
26
24
7
-4
-18

F( =.8)
211
225
234
240
242
230
220

Error
11
7
2
-15
-13
-17

Difference
12
19
22
22
9
0

Using alpha of .1 produced forecasting errors that were larger than those using
alpha = .8 for the first three forecasts. For the next two forecasts (periods 6
and 7), the forecasts using alpha = .1 produced smaller errors. Each exponential
smoothing model produced nearly the same amount of error in forecasting the
value for period 8. There is no strong argument in favor of either model.

17.7

Period
1
2
3
4
5
6
7
8
9

Value
9.4
8.2
7.9
9.0
9.8
11.0
10.3
9.5
9.1

=.3
9.4
9.0
8.7
8.8
9.1
9.7
9.9
9.8

Error
-1.2
-1.1
0.3
1.0
1.9
0.6
-0.4
-0.7

=.7
9.4
8.6
8.1
8.7
9.5
10.6
10.4
9.8

Error
-1.2
-0.7
0.9
1.1
1.5
-0.3
-0.9
-0.7

3-mo.avg. Error

8.5
8.4
8.9
9.9
10.4
10.3

0.5
1.4
1.1
0.4
-0.9
-1.2

Chapter 17: Time Series Forecasting and Index Numbers

17.8

17.9

Year
1
2
3
4
5
6
7
8
9
10
11
12
13

Orders
2512.7
2739.9
2874.9
2934.1
2865.7
2978.5
3092.4
3356.8
3607.6
3749.3
3952.0
3949.0
4137.0

(a)
F(a)

(c)
e(a)

(b)
F(b)

2785.46
2878.62
2949.12
3045.50
3180.20
3356.92
3551.62
3722.94

193.04
213.78
407.68
562.10
569.10
595.08
397.38
414.06

2852.36
2915.49
3000.63
3161.94
3364.41
3550.76
3740.97
3854.64

Year
1
2
3
4
5
6
7
8
9
10
11
12
13

No.Issues
332
694
518
222
209
172
366
512
667
571
575
865
609

F( =.2)
332.0
404.4
427.1
386.1
350.7
315.0
325.2
362.6
423.5
453.0
477.4
554.9

362.0
113.6
205.1
177.1
178.7
51.0
186.8
304.4
147.5
122.0
387.6
54.1

e = 2289.9
For = .2, MAD =

2289 .9
= 190.8
12

For = .9, MAD =

2023 .0
= 168.6
12

= .9 produces a smaller mean average error.

F( =.9)
332.0
657.8
532.0
253.0
213.4
176.1
347.0
495.5
649.9
578.9
575.4
836.0

(c)
e(b)

126.14
176.91
356.17
445.66
384.89
401.24
208.03
282.36

362.0
139.8
310.0
44.0
41.4
189.9
165.0
171.5
78.9
3.9
289.6
227.0

e =2023.0

Chapter 17: Time Series Forecasting and Index Numbers

17.10 Simple Regression Trend Model:

= 37,969 + 9899.1 Period

F = 1603.11 (p = .000), R2 = .988, adjusted R2 = .988,


se = 6,861, t = 40.04 (p = .000)
Quadratic Regression Trend Model:

= 35,769 + 10,473 Period - 26.08 Period2

F = 772.71 (p = .000), R2 = .988, adjusted R2 = .987


se = 6,988, tperiod = 9.91 (p = .000), tperiodsq = -0.56 (p = .583)
The simple linear regression trend model is superior, the period2 variable is not a
significant addition to the model.

17.11 Trend line:


R2 = 83.0%

Members = 148,141.8 66.0143 Year


se = 190.1374

F = 92.82, reject the null hypothesis.

Y ear Line Fit Plot

17500

17000

16500

16000

15500

15000
1980

1985

1990

1995
Y ear

2000

2005

Chapter 17: Time Series Forecasting and Index Numbers

10

17.12
Y ear Line Fit Plot

1200

1000

800

600

400

200

0
0

10

Year

Trend Model:
Loans = 809.2611 + 23.18333 Year
R2 = 33.0
adjusted R2 = 23.4
se = 96.80
t = 1.86 (p = .106)
F = 3.44 (p = .1.06)
Quadratic Model:
Loans = 561.1738 + 158.5037 Year 13.5320 Year2
R2 = 90.6
adjusted R2 = 87.5
tyear = 6.93 (p = .0004)
tyearsq = -6.07 (p = .000)
F = 28.95 (p = .0008)

se = 39.13

The graph indicates a quadratic fit rather than a linear fit. The quadratic model
produced an R2 = 90.6 compared to R2 = 33.0 for linear trend indicating a much
better fit for the quadratic model. In addition, the standard error of the estimate
drops from 96.80 to 39.13 with the quadratic model along with the t values
becoming significant.

Chapter 17: Time Series Forecasting and Index Numbers

11

17.13
Month
Jan.(yr. 1)
Feb.
Mar.
Apr.
May
June

Broccoli

12-Mo. Mov.Tot.

2-Yr.Tot.

TC

SI

3282.8

136.78

93.30

3189.7

132.90

90.47

3085.0

128.54

92.67

3034.4

126.43

98.77

2996.7

124.86

111.09

2927.9

122.00

100.83

2857.8

119.08

113.52

2802.3

116.76

117.58

2750.6

114.61

112.36

2704.8

112.70

92.08

2682.1

111.75

99.69

2672.7

111.36

102.73

132.5
164.8
141.2
133.8
138.4
150.9
1655.2

July

146.6
1627.6

Aug.

146.9
1562.1

Sept.

138.7
1522.9

Oct.

128.0

Nov.

112.4

Dec.

121.0

Jan.(yr. 2)

104.9

1511.5
1485.2
1442.7
1415.1
Feb.

99.3
1387.2

Mar.

102.0
1363.4

Apr.

122.4
1341.4

May

112.1
1340.7

June

108.4
1332.0

July
Aug.
Sept.
Oct.
Nov.
Dec.

119.0
119.0
114.9
106.0
111.7
112.3

Chapter 17: Time Series Forecasting and Index Numbers

12

17.14
Month

Ship

12m tot

2yr tot

TC

SI

TCI

Jan(Yr1) 1891

1952.50

2042.72

Feb

1986

1975.73

2049.87

Mar

1987

1973.78

2057.02

Apr

1987

1972.40

2064.17

May

2000

1976.87

2071.32

June

2082

1982.67

2078.46

23822
July

1878

47689

1987.04

94.51 1970.62

2085.61

94.49

47852

1993.83 104.02 2011.83

2092.76

96.13

48109

2004.54 104.06 2008.47

2099.91

95.65

48392

2016.33 101.42 1969.76

2107.06

93.48

48699

2029.13

95.85 2024.57

2114.20

95.76

49126

2046.92

90.92 2002.80

2121.35

94.41

49621

2067.54

93.64 1998.97

2128.50

93.91

49989

2082.88 101.01 2093.12

2135.65

98.01

50308

2096.17 101.42 2111.85

2142.80

98.56

50730

2113.75 100.82 2115.35

2149.94

98.39

51132

2130.50 101.53 2137.99

2157.09

99.11

51510

2146.25 109.31 2234.07

2164.24 103.23

51973

2165.54

2171.39 101.92

52346

2181.08 101.37 2144.73

2178.54

98.45

52568

2190.33 103.55 2183.71

2185.68

99.91

23867
Aug

2074

Sept

2086

Oct

2045

Nov

1945

Dec

1861

23985
24124
24268
24431
24695
Jan(Yr2) 1936
24926
Feb

2104
25063

Mar

2126
25245

Apr

2131
25485

May

2163
25647

June

2346

July

2109

25863
97.39 2213.01

26110
Aug

2211

Sept

2268

26236
26332

Chapter 17: Time Series Forecasting and Index Numbers

Oct

2285

Nov

2107

Dec

2077

13

52852

2202.17 103.76 2200.93

2192.83

100.37

53246

2218.58

94.97 2193.19

2199.98

99.69

53635

2234.79

92.94 2235.26

2207.13

101.27

53976

2249.00

97.07 2254.00

2214.28

101.79

54380

2265.83

98.42 2218.46

2221.42

99.87

54882

2286.75

97.17 2207.21

2228.57

99.04

55355

2306.46 100.54 2301.97

2235.72

102.96

55779

2324.13 101.93 2341.60

2242.87

104.40

56186

2341.08 108.03 2408.34

2250.02

107.04

56539

2355.79

96.23 2378.80

2257.17

105.39

56936

2372.33 103.57 2383.35

2264.31

105.26

57504

2396.00 105.34 2430.19

2271.46

106.99

58075

2419.79 103.40 2409.94

2278.61

105.76

58426

2434.42

95.05 2408.66

2285.76

105.38

58573

2440.54

93.30 2450.50

2292.91

106.87

58685

2445.21

95.53 2411.98

2300.05

104.87

58815

2450.63 100.95 2461.20

2307.20

106.67

58806

2450.25 103.91 2529.06

2314.35

109.28

58793

2449.71 104.75 2547.15

2321.50

109.72

58920

2455.00 100.73 2444.40

2328.65

104.97

59018

2459.08 104.59 2449.29

2335.79

104.86

59099

2462.46

94.86 2451.21

2342.94

104.62

59141

2464.21 102.18 2442.53

2350.09

103.93

26520
26726
26909
Jan(Yr3) 2183
27067
Feb

2230
27313

Mar

2222
27569

Apr

2319
27786

May

2369
27993

June

2529
28193

July

2267

Aug

2457

Sept

2524

Oct

2502

Nov

2314

28346
28590
28914
29161
29265
Dec

2277
29308

Jan(Yr4) 2336
29377
Feb

2474
29438

Mar

2546
29368

Apr

2566
29425

May

2473

June

2572

July

2336

29495
29523
29576
Aug

2518
29565

Chapter 17: Time Series Forecasting and Index Numbers

Sept

2454

Oct

2559

Nov

2384

Dec

2305

14

59106

2462.75

99.64 2362.80

2357.24

100.24

58933

2455.54 104.21 2464.84

2364.39

104.25

58779

2449.13

97.34 2481.52

2371.53

104.64

58694

2445.58

94.25 2480.63

2378.68

104.29

58582

2440.92

97.87 2466.70

2385.83

103.39

58543

2439.29 100.97 2450.26

2392.98

102.39

58576

2440.67 103.33 2505.22

2400.13

104.38

58587

2441.13

99.01 2399.25

2407.27

99.67

58555

2439.79 101.16 2439.46

2414.42

101.04

58458

2435.75 102.31 2373.11

2421.57

98.00

58352

2431.33

94.76 2417.63

2428.72

99.54

58258

2427.42 103.44 2435.74

2435.87

99.99

57922

2413.42 103.34 2401.31

2443.01

98.29

57658

2402.42 105.31 2436.91

2450.16

99.46

57547

2397.79

99.30 2478.40

2457.31

100.86

57400

2391.67

92.45 2379.47

2464.46

96.55

57391

2391.29

99.40 2454.31

2471.61

99.30

57408

2392.00

99.54 2368.68

2478.76

95.56

57346

2389.42

94.92 2252.91

2485.90

90.63

57335

2388.96 100.76 2389.32

2493.05

95.84

57362

2390.08

99.03 2339.63

2500.20

93.58

57424

2392.67 102.23 2329.30

2507.35

92.90

29541
29392
29387
29307
Jan(Yr5) 2389
29275
Feb

2463
29268

Mar

2522
29308

Apr

2417
29279

May

2468
29276

June

2492

July

2304

29182
29170
Aug

2511

Sept

2494

Oct

2530

29088
28834
28824
Nov

2381
28723

Dec

2211
28677

Jan(Yr6) 2377
28714
Feb

2381
28694

Mar

2268
28652

Apr

2407

May

2367

June

2446

July
Aug

2341
2491

28683
28679
28745

Chapter 17: Time Series Forecasting and Index Numbers

Sept
Oct
Nov
Dec

15

2452
2561
2377
2277

Seasonal Indexing:
Month Year1 Year2
Jan
93.64
Feb
101.01
Mar
101.42
Apr
100.82
May
101.53
June
109.31
July
94.51
97.39
Aug
104.02
101.37
Sept 104.60
103.55
Oct
101.42
103.76
Nov
95.85
94.97
Dec
90.92
92.94

Year3
97.07
98.42
97.17
100.54
101.93
108.03
96.23
103.57
105.34
103.40
95.05
93.30

Year4
95.53
100.95
103.91
104.75
100.73
104.59
94.86
102.18
99.64
104.21
97.24
94.25

Total

Year5
97.87
100.97
103.33
99.01
101.16
102.31
94.76
103.44
103.34
105.31
99.30
92.45

Year6
99.40
99.54
94.92
100.76
99.03
102.23

Index
96.82
100.49
100.64
100.71
101.14
104.98
95.28
103.06
103.83
103.79
96.05
92.90
1199.69

Adjust each seasonal index by 1.0002584


Final Seasonal Indexes:
Month Index
Jan
96.85
Feb
100.52
Mar
100.67
Apr
100.74
May
101.17
June
105.01
July
95.30
Aug
103.09
Sept
103.86
Oct
103.82
Nov
96.07
Dec
92.92
Regression Output for Trend Line:

Y = 2035.58 + 7.1481 X

R2 = .682, se = 102.9
Note: Trend Line was determined after seasonal effects were removed (based on TCI
column).

Chapter 17: Time Series Forecasting and Index Numbers

17.15 Regression Analysis


The regression equation is:
Predictor
Coef
Constant
1.4228
Shelter
0.4925
s = 0.939
Food
8.5
7.8
4.1
2.3
3.7
2.3
3.3
4.0
4.1
5.7
5.8
3.6
1.4
2.1
2.3
2.8
3.2
2.6
2.2
2.2
2.3
3.1
1.8
2.1
3.4
2.5

Food = 1.4228 + 0.4925 Housing


t-ratio
p
4.57
0.0001
7.99
0.0000

R-sq = 72.7%
Housing
15.7
11.5
7.2
2.7
4.1
4.0
3.0
3.0
3.8
3.8
4.5
4.0
2.9
2.7
2.5
2.6
2.9
2.6
2.3
2.2
3.5
4.0
2.2
2.5
2.5
3.3

9.1555
7.0868
4.9690
2.7526
3.4421
3.3929
2.9004
2.9004
3.2944
3.2944
3.6391
3.3929
2.8511
2.7526
2.6541
2.7033
2.8511
2.7033
2.5556
2.5063
3.1466
3.3929
2.5063
2.6541
2.6541
3.0481

16

R-sq(adj) = 71.5%
e
-0.6555
0.7132
-0.8690
-0.4526
0.2579
-1.0929
0.3996
1.0996
0.8056
2.4056
2.1609
0.2071
-1.4511
-0.6526
-0.3541
0.0967
0.3489
-0.1033
-0.3556
-0.3063
-0.8466
-0.2929
-0.7063
-0.5541
0.7459
-0.5481
Total

e2
0.4296
0.5086
0.7551
0.2048
0.0665
1.1944
0.1597
1.2092
0.6490
5.7870
4.6693
0.0429
2.1057
0.4259
0.1254
0.0093
0.1217
0.0107
0.1264
0.0938
0.7168
0.0858
0.4989
0.3070
0.5564
0.3004
21.1603

(e

et 1 ) 2 = 1.873 + 2.503 + 0.173 + 0.505 + 1.825 + 2.228 + 0.490 +

= 21.160

D =

0.0864 + 2.560 + 0.060 + 3.817 + 2.750 + 0.638 + 0.089 +


0.203 + 0.064 + 0.205 + 0.064 + 0.205 + 0.064 + 0.002 +
0.292 + 0.307 + 0.171 + 0.023 + 1.690 + 1.674 = 24.561

( e t e t1 ) 2

2 . 54 6 1
= 1.16
2 . 11 6 0

Critical values of D: Using 1 independent variable, n = 26, and = .05,

Chapter 17: Time Series Forecasting and Index Numbers

17

dL = 1.30 and dU = 1.46


Since D = 1.16 is less than dL, the decision is to reject the null hypothesis.
There is significant autocorrelation.
17.16 Regression Analysis
The regression equation is:
Predictor
Coef
Constant
3.1286
First Diff
-.2003
s = 1.44854
Food
8.5
7.8
4.1
2.3
3.7
2.3
3.3
4.0
4.1
5.7
5.8
3.6
1.4
2.1
2.3
2.8
3.2
2.6
2.2
2.2
2.3
3.1
1.8
2.1
3.4
2.5

Housing
15.7
11.5
7.2
2.7
4.1
4.0
3.0
3.0
3.8
3.8
4.5
4.0
2.9
2.7
2.5
2.6
2.9
2.6
2.3
2.2
3.5
4.0
2.2
2.5
2.5
3.3

Food = 3.1286 - 0.2003 First Diff in Housing


t-ratio
p
10.30
0.000
-1.09
0.287

R-sq = 4.9%

R-sq(adj) = 0.8%

First Diff in Housing


-4.2
-4.3
-4.5
1.4
-0.1
-1.0
0.0
0.8
0.0
0.7
-0.5
-1.1
-0.2
-0.2
0.1
0.3
-0.3
-0.3
-0.1
1.3
0.5
-1.8
0.3
0.0
0.8

Critical values of D: Using 1 independent variable, n = 25, and = .05,


dL = 1.29 and dU = 1.46
Since D = 1.04 is less than dL, the decision is to reject the null hypothesis.
There is significant autocorrelation.

Chapter 17: Time Series Forecasting and Index Numbers

18

17.17 The regression equation is:


Failed Bank Assets = 1,379 + 136.68 Number of Failures
for x= 150:
R2 = 37.9%

= 21,881 (million $)

adjusted R2 = 34.1%

se = 13,833

F = 9.78, p = .006

The Durbin Watson statistic for this model is:


D = 2.49
The critical table values for k = 1 and n = 18 are dL = 1.16 and dU = 1.39. Since
the observed value of D = 2.49 is above dU, the decision is to fail to reject the null
hypothesis. There is no significant autocorrelation.
Failed Bank Assets
8,189
104
1,862
4,137
36,394
3,034
7,609
7,538
56,620
28,507
10,739
43,552
16,915
2,588
825
753
186
27

Number of Failures
11
7
34
45
79
118
144
201
221
206
159
108
100
42
11
6
5
1

2,882.8
2,336.1
6,026.5
7,530.1
12,177.3
17,507.9
21,061.7
28,852.6
31,586.3
29,536.0
23,111.9
16,141.1
15,047.6
7,120.0
2,882.8
2,199.4
2,062.7
1,516.0

e
5,306.2
-2,232.1
-4,164.5
-3,393.1
24,216.7
-14,473.9
-13,452.7
-21,314.6
25,033.7
- 1,029.0
-12,372.9
27,410.9
1,867.4
- 4,532.0
- 2,057.8
- 1,446.4
- 1,876.7
- 1,489.0

e2
28,155,356
4,982,296
17,343,453
11,512,859
586,449,390
209,494,371
180,974,565
454,312,622
626,687,597
1,058,894
153,089,247
751,357,974
3,487,085
20,539,127
4,234,697
2,092,139
3,522,152
2,217,144

Chapter 17: Time Series Forecasting and Index Numbers

19

17.18
Failed Bank Assets
8,189
104
1,862
4,137
36,394
3,034
7,609
7,538
56,620
28,507
10,739
43,552
16,915
2,588
825
753
186
27

Number of Failures
11
7
34
45
79
118
144
201
221
206
159
108
100
42
11
6
5
1

First Diff Failures


-4
27
11
34
39
26
57
20
-15
-47
-51
-8
-58
-31
-5
-1
-4

The regression equation is:


Failed Bank Assets = 13,019 7.3 First Diff Failures
R2 = 0.0%

adjusted R2 = 0.0%

se = 18,091.7

F = 0.00, p = .958

The Durbin Watson statistic for this model is:


D = 1.57
The critical table values for k = 1 and n = 17 are dL = 1.13 and dU = 1.38. Since
the observed value of D = 1.57 is above dU, the decision is to fail to reject the null
hypothesis. There is no significant autocorrelation.

Chapter 17: Time Series Forecasting and Index Numbers

17.19

Starts
333.0
270.4
281.1
443.0
432.3
428.9
443.2
413.1
391.6
361.5
318.1
308.4
382.2
419.5
453.0
430.3
468.5
464.2
521.9
550.4
529.7
556.9
606.5
670.1
745.5
756.1
826.8

lag1
*
333.0
270.4
281.1
443.0
432.3
428.9
443.2
413.1
391.6
361.5
318.1
308.4
382.2
419.5
453.0
430.3
468.5
464.2
521.9
550.4
529.7
556.9
606.5
670.1
745.5
756.1

20

lag2
*
*
333.0
270.4
281.1
443.0
432.3
428.9
443.2
413.1
391.6
361.5
318.1
308.4
382.2
419.5
453.0
430.3
468.5
464.2
521.9
550.4
529.7
556.9
606.5
670.1
745.5

The model with 1 lag:


Housing Starts = -8.87 + 1.06 lag 1
F = 198.67

p = .000 R2 = 89.2% adjusted R2 = 88.8%

se = 48.52

The model with 2 lags:


Housing Starts = 13.66 + 1.0569 lag 2
F = 72.36

p = .000 R2 = 75.9% adjusted R2 = 74.8%

Se = 70.84

The model with 1 lag is the best model with a strong R2 = 89.2%. The model
with 2 lags is relatively strong also.

Chapter 17: Time Series Forecasting and Index Numbers

17.20 The autoregression model is:

21

Juice = 552 + 0.645 Juicelagged2

The F value for this model is 27.0 which is significant at alpha = .001.
The value of R2 is 56.2% which denotes modest predictability. The
adjusted R2 is 54.2%. The standard error of the estimate is 216.6. The DurbinWatson statistic is 1.70 indicating that there is no significant autocorrelation in
this model.

17.21 Year
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005

Price
22.45
31.40
32.33
36.50
44.90
61.24
69.75
73.44
80.05
84.61
87.28
89.56

a.) Index1950
100.0
139.9
144.0
162.6
200.0
272.8
310.7
327.1
356.6
376.9
388.8
398.9

b.) Index1980
32.2
45.0
46.4
52.3
64.4
87.8
100.0
105.3
114.8
121.3
125.1
128.4

Chapter 17: Time Series Forecasting and Index Numbers

17.22 Year Patents


1980
66.2
1981
71.1
1982
63.3
1983
62.0
1984
72.7
1985
77.2
1986
76.9
1987
89.4
1988
84.3
1989 102.5
1990
99.1
1991 106.7
1992 107.4
1993 109.7
1994 113.6
1995 113.8
1996 121.7
1997 124.1
1998 163.1
1999 169.1
2000 176.0
2001 184.0
2002 184.4
2003 187.0
2004 181.3

Index
66.8
71.7
63.9
62.6
73.4
77.9
77.6
90.2
85.1
103.4
100.0
107.7
108.4
110.7
114.8
115.3
122.8
125.2
164.6
170.6
177.6
185.7
186.1
188.7
182.9

22

Chapter 17: Time Series Forecasting and Index Numbers

17.23

23

Year

Totals

1993
1.53
2.21
1.92
3.38

1999
1.40
2.15
2.68
3.10

2005
2.17
2.51
2.60
4.00

9.04

9.33

11.28

Index1993 =

9 .0
9 .0

4
(1
4

0 ) =0 100.0

Index1999 =

9 .3 3
(1
9 .0 4

0 ) =0 103.2

Index2005 =

1 . 21 8
(1
9 .0 4

0 ) =0 124.8

17.24

Year
1998
1.10
1.58
1.80
7.95

1999
1.16
1.61
1.82
7.96

2000
1.23
1.78
1.98
8.24

2001
1.23
1.77
1.96
8.21

2002
1.08
1.61
1.94
8.19

2003
1.56
1.71
1.90
8.05

2004
1.85
1.90
1.92
8.12

2005
2.59
2.05
1.94
8.10

2006
2.89
2.08
1.96
8.24

Totals 12.43

12.55

13.23

13.17

12.82

13.22

13.79

14.68

15.17

Index1998 =

1 . 42 3
(1
1 . 23 3

0 ) 0= 94.0

Index1999 =

1 . 52 5
(1
1 . 23 3

0 ) 0= 94.9

Index2000 =

1 . 23 3
(1
1 . 23 3

0 ) 0= 100.0

Index2001 =

1 . 13 7
(1
1 . 23 3

0 ) 0= 99.5

Chapter 17: Time Series Forecasting and Index Numbers

Index2002 =

1 . 82 2
(1
1 . 23 3

0 ) 0= 100.0

Index2003 =

1 . 23 2
(1
1 . 23 3

0 ) 0= 101.0

Index2004 =

1 . 73 9
(1
1 . 23 3

0 ) 0= 106.4

Index2005 =

1 . 64 8
(1
1 . 23 3

0 ) 0= 111.0

Index2006 =

1 . 15 7
(1
1 . 23 3

0 ) 0= 114.7

17.25

24

Item

Quantity
2000

Price
2000

Price
2004

Price
2005

Price
2006

1
2
3
4

21
6
17
43

0.50
1.23
0.84
0.15

0.67
1.85
0.75
0.21

0.68
1.90
0.75
0.25

0.71
1.91
0.80
0.25

P2000Q2000 P2004Q2000 P2005Q2000 P2006Q2000

Totals

10.50
7.38
14.28
6.45

14.07
11.10
12.75
9.03

14.28
11.40
12.75
10.75

14.91
11.46
13.60
10.75

38.61

46.95

49.18

50.72

Index2000 =

Index2001 =

Index2002 =

P2

Q0

24 0

P2

Q0

20 0

P2

Q0

25 0

P2

Q0

20 0

P2

Q0

26 0

P2

Q0

20 0

46 .95
(100 ) = 121.6
38 .61

49 .18
(100 ) = 127.4
38 .61
50 .72
(100 ) = 131.4
38 .61

Chapter 17: Time Series Forecasting and Index Numbers

17.26
Item

Price
2000

1
2
3

22.50
10.90
1.85

25

Price Quantity Price


2005
2005
2006
27.80
13.10
2.25

13
5
41

Quantity
2006

28.11
13.25
2.35

12
8
44

P2000Q2005 P2000Q2006 P2005Q2005 P2006Q2006

Totals

292.50
54.50
75.85

270.00
87.20
81.40

361.40
65.50
92.25

337.32
106.00
103.40

422.85

438.60

519.15

546.72

Index2005 =

Index2006 =

17.27 a)

P2

Q0

25 0

P2

Q0

(1

20 0

P2

Q0

26 0

P2

Q0

(1

20 0

0 ) =0

0 ) 0=

519 .15
(100 ) = 122.8
422 .85
546 .72
(100 ) = 124.7
438 .60

The linear model:

Yield = 9.96 - 0.14 Month

F = 219.24

R2 = 90.9

p = .000

se = .3212

The quadratic model:

Yield = 10.4 - 0.252 Month + .00445 Month2

F = 176.21

R2 = 94.4%

p = .000

se = .2582

In the quadratic model, both t ratios are significant,


for x: t = - 7.93, p = .000 and for x2d: t = 3.61, p = .002
The linear model is a strong model. The quadratic term adds some
predictability but has a smaller t ratio than does the linear term.

Chapter 17: Time Series Forecasting and Index Numbers

b)

x
10.08
10.05
9.24
9.23
9.69
9.55
9.37
8.55
8.36
8.59
7.99
8.12
7.91
7.73
7.39
7.48
7.52
7.48
7.35
7.04
6.88
6.88
7.17
7.22

MAD =
c)

F
9.65
9.55
9.43
9.46
9.29
8.96
8.72
8.37
8.27
8.15
7.94
7.79
7.63
7.53
7.47
7.46
7.35
7.19
7.04
6.99

e
.04
.00
.06
.91
.93
.37
.73
.25
.36
.42
.55
.31
.11
.05
.12
.42
.47
.31
.13
.23
e = 6.77

6.77
20

= .3
e
x
F
10.08
10.05 10.08 .03
9.24 10.07 .83
9.23 9.82 .59
9.69 9.64 .05
9.55 9.66 .11
9.37 9.63 .26
8.55 9.55 1.00
8.36 9.25 .89
8.59 8.98 .39
7.99 8.86 .87
8.12 8.60 .48

= .3385

= .7
e
F
10.08 .03
10.06 .82
9.49 .26
9.31 .38
9.58 .03
9.56 .19
9.43 .88
8.81 .45
8.50 .09
8.56 .57
8.16 .04

26

Chapter 17: Time Series Forecasting and Index Numbers

7.91
7.73
7.39
7.48
7.52
7.48
7.35
7.04
6.88
6.88
7.17
7.22

8.46
8.30
8.13
7.91
7.78
7.70
7.63
7.55
7.40
7.24
7.13
7.14

.55
.57
.74
.43
.26
.22
.28
.51
.52
.36
.04
.08
e = 10.06

MAD =.3 =

10 .06
23

27

8.13
7.98
7.81
7.52
7.49
7.51
7.49
7.39
7.15
6.96
6.90
7.09

.22
.25
.42
.04
.03
.03
.14
.35
.27
.08
.27
.13
e = 5.97
= .4374

MAD =.7 =

5.97
= .2596
23

= .7 produces better forecasts based on MAD.


d).

MAD for b) .3385, c) .4374 and .2596. Exponential smoothing with = .7


produces the lowest error (.2596 from part c).

e)
TCSI
10.08
10.05

4 period
moving tots

8 period
moving tots

TC

SI

76.81

9.60

96.25

75.92

9.49

97.26

75.55

9.44

102.65

75.00

9.38

101.81

72.99

9.12

102.74

70.70

8.84

96.72

68.36

8.55

97.78

66.55

8.32

103.25

65.67

8.21

97.32

64.36

8.05

100.87

38.60
9.24
38.21
9.23
37.71
9.69
37.84
9.55
37.16
9.37
35.83
8.55
34.87
8.36
33.49
8.59
33.06
7.99
32.61
8.12

Chapter 17: Time Series Forecasting and Index Numbers

28

31.75
7.91

62.90

7.86

100.64

61.66

7.71

100.26

60.63

7.58

97.49

59.99

7.50

99.73

59.70

7.46

100.80

59.22

7.40

101.08

58.14

7.27

101.10

56.90

7.11

99.02

56.12

7.02

98.01

56.12

7.02

98.01

31.15
7.73
30.51
7.39
30.12
7.48
29.87
7.52
29.83
7.48
29.39
7.35
28.75
7.04
28.15
6.88
27.97
6.88
28.15
7.17
7.22
1st Period
2nd Period
3rd Period
4th Period

102.65 97.78 100.64 100.80 98.01


101.81 103.25 100.26 101.08 98.01
96.25 102.74 97.32 97.49 101.10
97.26 96.72 100.87 99.73 99.02

The highs and lows of each period (underlined) are eliminated and the others are
averaged resulting in:
Seasonal Indexes:

1st
2nd
3rd
4th
total

99.82
101.05
98.64
98.67
398.18

Since the total is not 400, adjust each seasonal index by multiplying by
= 1.004571 resulting in the final seasonal indexes of:
1st 100.28
2nd 101.51
3rd 99.09
4th 99.12

400
398 .18

Chapter 17: Time Series Forecasting and Index Numbers

17.28

Year
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006

17.29

Item
1
2
3
4
5
6
Totals
Index2002 =

Index2003 =

Index2004 =

Index2005 =

Index2006 =

Quantity
2073
2290
2349
2313
2456
2508
2463
2499
2520
2529
2483
2467
2397
2351
2308

2002
3.21
0.51
0.83
1.30
1.67
0.62
8.14

Index Number
100.0
110.5
113.3
111.6
118.5
121.1
118.8
120.5
121.6
122.0
119.8
119.0
115.6
113.4
111.3

2003
3.37
0.55
0.90
1.32
1.72
0.67
8.53

P2

P2

(1

P2

0 0

P2

(1

P2

P2

(1

P2

0 0

P2

(1

29

P2

P2

(1

2004
3.80
0.68
0.91
1.33
1.90
0.70
9.32

2005
3.73
0.62
1.02
1.32
1.99
0.72
9.40

0) = 0

8 .1
8 .1

4
(1
4

0 ) 0= 100.0

0) = 0

8 .5 3
(1
8 .1 4

0 ) 0= 104.8

0) = 0

9 .3 2
(1
8 .1 4

0 ) 0= 114.5

0) = 0

9 .4 0
(1
8 .1 4

0 ) 0= 115.5

0) = 0

9 .2 9
(1
8 .1 4

0 ) 0= 114.1

2006
3.65
0.59
1.06
1.30
1.98
0.71
9.29

Chapter 17: Time Series Forecasting and Index Numbers

17.30
Item
1
2
3

2003
P
Q
2.75 12
0.85 47
1.33 20

Laspeyres:

2004
P Q
2.98 9
0.89 52
1.32 28

2005
P
Q
3.10 9
0.95 61
1.36 25

2006
P Q
3.21 11
0.98 66
1.40 32

P2003Q2003

P2006Q2003

33.00
39.95
26.60
99.55

38.52
46.06
28.00
112.58

Totals

Laspeyres Index2006 =

Paasche2005:

P2

Q0

26 0

P2

Q0

(1

23 0

30

0 ) 0=

112 .58
(100 ) = 113.1
99 .55

P2003Q2005 P2005Q2005
24.75
51.85
33.25
109.85

Totals
Paasche Index2005 =

27.90
57.95
34.00
119.85

P2

Q0

25 0

P2

Q0

(1

23 0

0 ) 0=

119 .85
(100 ) = 109.1
109 .85

Chapter 17: Time Series Forecasting and Index Numbers

17.31
Year
1980
1981
1982
1983
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004

a) moving average
e
F

Quantity
6559
6022
6439
6396
1984
6391
6152
7034
7400
8761
9842
10065
10298
10209
10500
9913
9644
9952
9333
9409
9143
9512
9430
9513
10085

31

b) = .2
F

6022.00
6022.00
6340.00
56.00
6105.40
290.60
6405
6285.67
119.33
6163.52
241.48
6413.33
22.33
6211.82
179.18
6397.33
245.33
6247.65
95.65
6316.00
718.00
6228.52
805.48
6525.67
874.33
6389.62
1010.38
6862.00 1899.00
6591.69
2169.31
7731.67 2110.33
7025.56
2816.45
8667.67 1397.33
7588.84
2476.16
9556.00
742.00
8084.08
2213.93
10068.33
140.67
8526.86
1682.14
10190.67
309.33
8863.29
1636.71
10335.67
422.67
9190.63
722.37
10207.33
563.33
9335.10
308.90
10019.00
67.00
9396.88
555.12
9836.33
503.33
9507.91
174.91
9643.00
234.00
9472.93
63.93
9564.67
421.67
9460.14
317.14
9295.00
217.00
9396.71
115.29
9354.67
75.33
9419.77
10.23
9361.67
151.33
9421.82
91.18
9485.00
600.00
9440.05
644.95

e =11,889.67
MADmoving average =

MAD =.2 =
c)

numberfore casts

numberfore casts

e =18,621.46

1 , 81 8 . 6 9 7
= 540.44
2 2

1 , 68 2. 4 1 6
= 846.43
2 2

The three-year moving average produced a smaller MAD (540.44) than did
exponential smoothing with = .2 (MAD = 846.43). Using MAD as the
criterion, the three-year moving average was a better forecasting tool than the
exponential smoothing with = .2.

Chapter 17: Time Series Forecasting and Index Numbers

32

17.32-17.34
Month Chem
Jan(1)
Feb
Mar
Apr
May
June

23.701
24.189
24.200
24.971
24.560
24.992

July

22.566

Aug

24.037

Sept

25.047

12m tot

2yr tot

TC

SI

TCI

575.65

23.985

94.08

23.872

23.917

575.23

23.968

100.29

24.134

23.919

576.24

24.010

104.32

24.047

23.921

577.78

24.074

100.17

24.851

23.924

578.86

24.119

95.50

24.056

23.926

580.98

24.208

93.32

23.731

23.928

584.00

24.333

95.95

24.486

23.931

586.15

24.423

98.77

24.197

23.933

587.81

24.492

103.23

23.683

23.936

589.05

24.544

103.59

24.450

23.938

590.05

24.585

102.44

24.938

23.940

592.63

24.693

107.26

24.763

23.943

595.28

24.803

97.12

25.482

23.945

597.79

24.908

99.05

24.771

23.947

601.75

25.073

103.98

25.031

23.950

605.59

25.233

96.41

25.070

23.952

288.00
287.65
287.58
288.66
Oct

24.115
289.12

Nov

23.034
289.74

Dec

22.590
291.24

Jan(2)

23.347
292.76

Feb

24.122

Mar

25.282

Apr

25.426

May

25.185

June

26.486

July

24.088

293.39
294.42
294.63
295.42
297.21
298.07
Aug

24.672
299.72

Sept

26.072
302.03

Oct

24.328
303.56

Chapter 17: Time Series Forecasting and Index Numbers

Nov

23.826

Dec

24.373

Jan(3)

24.207

Feb

25.772

33

607.85

25.327

94.07

24.884

23.955

610.56

25.440

95.81

25.605

23.957

613.27

25.553

94.73

25.388

23.959

614.89

25.620

100.59

25.852

23.962

616.92

25.705

107.34

25.846

23.964

619.39

25.808

104.46

25.924

23.966

622.48

25.937

99.93

25.666

23.969

625.24

26.052

109.24

26.608

23.971

627.35

26.140

94.95

26.257

23.974

629.12

26.213

97.51

25.663

23.976

631.53

26.314

103.44

26.131

23.978

635.31

26.471

96.90

26.432

23.981

639.84

26.660

95.98

26.725

23.983

644.03

26.835

94.54

26.652

23.985

647.65

26.985

93.82

26.551

23.988

652.98

27.208

97.16

26.517

23.990

659.95

27.498

106.72

27.490

23.992

666.46

27.769

104.37

27.871

23.995

672.57

28.024

101.43

28.145

23.997

679.39

28.308

106.50

28.187

24.000

686.66

28.611

93.48

28.294

24.002

694.30

28.929

100.13

29.082

24.004

701.34

29.223

105.34

29.554

24.007

304.29
306.27
307.00
307.89
Mar

27.591
309.03

Apr

26.958
310.36

May

25.920
312.12

June

28.460
313.12

July

24.821
314.23

Aug

25.560

Sept

27.218

Oct

25.650

Nov

25.589

Dec

25.370

314.89
316.64
318.67
321.17
322.86
Jan(4)

25.316
324.79

Feb

26.435
328.19

Mar

29.346
331.76

Apr

28.983
334.70

May

28.424
337.87

June

30.149

July

26.746

341.52
345.14
Aug

28.966
349.16

Sept

30.783

Chapter 17: Time Series Forecasting and Index Numbers

34

352.18
Oct

28.594

706.29

29.429

97.16

29.466

24.009

710.54

29.606

97.14

30.039

24.011

715.50

29.813

97.33

30.484

24.014

720.74

30.031

96.34

30.342

24.016

725.14

30.214

100.80

30.551

24.019

727.79

30.325

106.75

30.325

24.021

730.25

30.427

101.57

29.719

24.023

733.94

30.581

100.53

30.442

24.026

738.09

30.754

106.63

30.660

24.028

Year2
95.95
98.77
103.23
103.59
102.44
107.26
97.12
99.05
103.98
96.41
94.07
95.81

Year3
94.73
100.59
107.34
104.46
99.93
109.24
94.95
97.51
103.44
96.90
95.98
94.54

354.11
Nov

28.762
356.43

Dec

29.018
359.07

Jan(5)

28.931

Feb

30.456

Mar

32.372

Apr

30.905

May

30.743

June

32.794

361.67
363.47
364.32
365.93
368.01
370.08
July
Aug
Sept
Oct
Nov
Dec

29.342
30.765
31.637
30.206
30.842
31.090

Seasonal Indexing:
Month Year1
Jan
Feb
Mar
Apr
May
June
July
94.08
Aug
100.29
Sept
104.32
Oct
100.17
Nov
95.50
Dec
93.32
Total

Year4
93.82
97.16
106.72
104.37
101.43
106.50
93.48
100.13
105.34
97.16
97.14
97.33

Adjust each seasonal index by 1200/1199.88 = 1.0001

Year5
96.34
100.80
106.75
101.57
100.53
106.63

Index
95.34
99.68
106.74
103.98
100.98
106.96
94.52
99.59
104.15
97.03
95.74
95.18
1199.88

Chapter 17: Time Series Forecasting and Index Numbers

35

Final Seasonal Indexes:


Month
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec

Index
95.35
99.69
106.75
103.99
100.99
106.96
94.53
99.60
104.16
97.04
95.75
95.19

Regression Output for Trend Line:

= 22.4233 + 0.144974 x

R2 = .913
Regression Output for Quadratic Trend:

= 23.8158 + 0.01554 x + .000247 x2

R2 = .964
In this model, the linear term yields a t = 0.66 with p = .513 but the squared term
predictor yields a t = 8.94 with p = .000.
Regression Output when using only the squared predictor term:

= 23.9339 + 0.00236647 x2

R2 = .964
Note: The trend model derived using only the squared predictor was used in
computing T (trend) in the decomposition process.

Chapter 17: Time Series Forecasting and Index Numbers

36

17.35
2004
Price Quantity
1.26
21
0.94
5
1.43
70
1.05
12
2.81
27
7.49

Item
Margarine (lb.)
Shortening (lb.)
Milk (1/2 gal.)
Cola (2 liters)
Potato Chips (12 oz.)
Total
Index2004 =

Index2005 =

Index2006 =

P2

P2

(1

P2

0 0

P2

(1

P2

P2

(1

0) = 0

7 .4
7 .4

9
(1
9

0 ) 0= 100.0

0) = 0

7 .7 3
(1
7 .4 9

0 ) 0= 103.2

0) = 0

8 .3 7
(1
7 .4 9

0 ) 0= 111.8

P2004Q2004

P2005Q2004

P2006Q2004

26.46
4.70
100.10
12.60
75.87
219.73

27.72
4.85
109.20
12.24
77.22
231.23

29.19
5.60
113.40
15.00
80.73
243.92

Totals

IndexLaspeyres2005 =

IndexLaspeyres2006 =

Total

2005
Price Quantity
1.32
23
0.97
3
1.56
68
1.02
13
2.86
29
7.73

P2
P2

0 0 25 0

(1

Q0

24 0

P2

Q0

26 0

P2

Q0

(1

24 0

0 ) 0=

2 3. 2 1 3
(1
2 1. 7 9 3

0 ) 0= 105.2

0 ) 0=

2
2

0 ) 0= 111.0

4. 9 3 2
(1
1. 7 9 3

P2004Q2005

P2004Q2006

P2005Q2005

P2006Q2006

28.98
2.82
97.24
13.65
81.49
224.18

27.726
3.76
92.95
11.55
78.68
214.66

30.36
2.91
106.08
13.26
82.94
235.55

30.58
4.48
105.30
13.75
83.72
237.83

2006
Price Quantity
1.39
22
1.12
4
1.62
65
1.25
11
2.99
28
8.37

Chapter 17: Time Series Forecasting and Index Numbers

IndexPaasche2005 =

IndexPaasche2006 =

17.36

P2

0 0 25 0

P2

Q0

P2

0
0

P2

(1

24 0

Q0

26 0

Q0

(1

24 0

37

0 ) 0=

2 3. 5 5 5
(1
2 2.1 4 8

0 ) 0= 105.1

0 ) 0=

2 3. 8 7 3
(1
2 1. 6 4 6

0 ) 0= 110.8

= 9.5382 0.2716 x
(7) = 7.637

R2 = 40.2%

F = 12.78, p = .002

se = 0.264862
Durbin-Watson:
n = 21

k=1

= .05

D = 0.44
dL = 1.22 and dU = 1.42
Since D = 0.44 < dL = 1.22, the decision is to reject the null hypothesis.
There is significant autocorrelation.

Chapter 17: Time Series Forecasting and Index Numbers

17.37 Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

x
118.5
123.0
128.5
133.6
137.5
141.2
144.8
148.5
152.8
156.8
160.4
163.9
169.6
176.4
180.3
184.8
189.5
195.7

Fma

Fwma

SEMA

125.9
130.7
135.2
139.3
143.0
146.8
150.7
154.6
158.5
162.7
167.6
172.6
177.8
182.8

128.4
133.1
137.3
141.1
144.8
148.8
152.7
156.6
160.3
164.8
170.3
175.4
180.3
184.9

134.56
111.30
92.16
85.10
96.04
99.50
93.61
86.03
123.77
188.38
161.93
150.06
137.48
167.70

82.08
65.93
56.25
54.17
63.52
64.80
58.68
53.14
86.12
135.26
100.80
89.30
85.56
115.78

1,727.60

1,111.40

SE =
MSEma =

MSEwma =

38

1 7 . 62 07
= 123.4
=
o r e c a 1 s 4t s

N . Fo
S
N . Fo

SEWMA

1 1 .4 1 1
= 79.39
=
o r e c a 1 s 4t s

The weighted moving average does a better job of forecasting the data using
MSE as the criterion.

Chapter 17: Time Series Forecasting and Index Numbers

39

17.38 The regression model with one-month lag is:


Cotton Prices = - 61.24 + 1.1035 LAG1
F = 130.46 (p = .000), R2 = .839, adjusted R2 = .833,
se = 17.57, t = 11.42 (p = .000).
The regression model with four-month lag is:
Cotton Prices = 303.9 + 0.4316 LAG4
F = 1.24 (p = .278), R2 .053, adjusted R2 = .010,
se = 44.22, t = 1.11 (p = .278).
The model with the four-month lag does not have overall significance and has an
adjusted R2 of 1%. This model has virtually no predictability. The model with
the one-month lag has relatively strong predictability with adjusted R2 of 83.3%.
In addition, the F value is significant at = .001 and the standard error of the
estimate is less than 40% as large as the standard error for the four-month lag
model.

17.39
Qtr

TSCI

4qrtot

8qrtot

TC

SI

TCI

Year1 1 54.019
2 56.495
213.574
3

50.169

425.044 53.131

94.43

51.699 53.722

421.546 52.693 100.38

52.341 55.945

423.402 52.925

98.09

52.937 58.274

430.997 53.875 102.28

53.063 60.709

440.490 55.061

97.02

55.048 63.249

453.025 56.628 101.07

56.641 65.895

467.366 58.421

58.186 68.646

211.470
4

52.891
210.076

Year2 1

51.915
213.326

55.101
217.671

53.419
222.819

57.236
230.206

Year3 1 57.063
237.160

97.68

Chapter 17: Time Series Forecasting and Index Numbers

2 62.488

60.052 104.06

60.177 71.503

61.522

98.13

62.215 74.466

62.966 100.58

62.676 77.534

64.063

97.91

63.957 80.708

64.812 105.51

65.851 83.988

4
Year4 1
2

480.418
243.258
60.373
492.176
248.918
63.334
503.728
254.810
62.723
512.503
257.693
68.380
518.498
260.805

40

3 63.256

524.332 65.542

96.51

65.185 87.373

526.685 65.836 100.93

65.756 90.864

526.305 65.788

99.48

66.733 94.461

526.720 65.840 103.30

65.496 98.163

521.415 65.177

97.04

65.174 101.971

511.263 63.908 104.64

66.177 105.885

501.685 62.711

95.22

60.889 109.904

491.099 61.387 103.59

61.238 114.029

263.527
4 66.446
263.158
Year5 1 65.445
263.147
2 68.011
263.573
3 63.245
257.842
4 66.872
253.421
Year6 1 59.714
248.264
2 63.590
3 58.088
4 61.443
Quarter
1
2
3
4

Year1

Year2

Year3

Year4

Year5

Year6

Index

97.68
104.06
98.13
100.58

97.91
105.51
96.51
100.93

99.48
103.30
97.04
104.64

95.22
103.59

94.43
100.38

98.09
102.28
97.02
101.07

97.89
103.65
96.86
100.86

Total
Adjust the seasonal indexes by:

399.26
400
= 1.00185343
399 .26

Chapter 17: Time Series Forecasting and Index Numbers

41

Adjusted Seasonal Indexes:

17.40

Quarter

Index

1
2
3
4

98.07
103.84
97.04
101.05

Total

400.00

Time Period
Q1(yr1)
Q2
Q3
Q4
Q1(yr2)
Q2
Q3
Q4
Q1(yr3)
Q2
Q3
Q4
Q1(yr4)
Q2
Q3
Q4
Q1(yr5)
Q2
Q3
Q4
Q1(yr6)
Q2
Q3
Q4

Deseasonalized Data
55.082
54.406
51.699
52.341
52.937
53.063
55.048
56.641
58.186
60.177
62.215
62.676
63.957
65.851
65.185
65.756
66.733
65.496
65.174
66.177
60.889
61.238
59.860
60.805

Chapter 17: Time Series Forecasting and Index Numbers

17.41 Linear Model:


R2 = 55.7%

42

= 53.41032 + 0.532488 x

F = 27.65 with p = .000

se = 3.43
Quadratic Model:
R2 = 76.6%

= 47.68663 + 1.853339 x 0.052834 x2

F = 34.37 with p = .000

se = 2.55
In the quadratic regression model, both the linear and squared terms have
significant t statistics at alpha .001 indicating that both are contributing. In
addition, the R2 for the quadratic model is considerably higher than the R2 for the
linear model. Also, se is smaller for the quadratic model. All of these indicate
that the quadratic model is a stronger model.

17.42 R2 = 55.8%

F = 8.83 with p = .021

se = 50.18
This model with a lag of one year has modest predictability. The overall F is
significant at = .05 but not at = .01.

17.43 The regression equation is:


Equity Funds = -359.1 + 2.0898 Money Market Funds
R2 = 88.2%

se = 582.685

D = 0.84
For n = 26 and = .01, dL = 1.07 and dU = 1.22.
Since D = 0.84 < dL = 1.07, the null hypothesis is rejected. There is significant
autocorrelation in this model.

Chapter 17: Time Series Forecasting and Index Numbers

= .1

17.44
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18

PurPwr
6.04
5.92
5.57
5.40
5.17
5.00
4.91
4.73
4.55
4.34
4.67
5.01
4.86
4.72
4.60
4.48
4.86
5.15

F
6.04
6.03
5.98
5.92
5.85
5.77
5.68
5.59
5.49
5.38
5.31
5.28
5.24
5.19
5.13
5.07
5.05

.12
.46
.58
.75
.85
.86
.95
1.04
1.15
.71
.30
.42
.52
.59
.65
.21
.10

F
6.04
5.98
5.78
5.59
5.38
5.19
5.05
4.89
4.72
4.53
4.60
4.81
4.84
4.78
4.69
4.59
4.73

43

= .5
.12
.41
.38
.42
.38
.28
.32
.34
.38
.14
.41
.05
.12
.18
.21
.27
.42

e = 10.26 . e = 4.83
MAD1 =

MAD2 =

MAD3 =

10 .26
= .60
17

4.83
= .28
17

3.97
= .23
17

= .8
F

6.04
5.94
5.64
5.45
5.23
5.05
4.94
4.77
4.59
4.39
4.61
4.93
4.87
4.75
4.63
4.51
4.79

.12
.37
.24
.28
.23
.14
.21
.22
.25
.28
.40
.07
.15
.15
.15
.35
.36

e = 3.97

The smallest mean absolute deviation error is produced using = .8.


The forecast for year 19 is:
F(19) = (.8)(5.15) + (.2)(4.79) = 5.08

Chapter 17: Time Series Forecasting and Index Numbers

44

17.45 The model is: Bankruptcies = 75,532.436 0.016 Year


Since R2 = .28 and the adjusted R2 = .23, this is a weak model.
et
- 1,338.58
- 8,588.28
- 7,050.61
1,115.01
12,772.28
14,712.75
- 3,029.45
- 2,599.05
622.39
9,747.30
9,288.84
- 434.76
-10,875.36
- 9,808.01
- 4,277.69
- 256.80

(et et-1)2

et et-1
- 7,249.7
1,537.7
8,165.6
11,657.3
1,940.5
-17,742.2
430.4
3,221.4
9,124.9
- 458.5
- 9,723.6
-10,440.6
1,067.4
5,530.3
4,020.9

(e

D =

(e e
e

t 1
2

)2

52,558,150
2,364,521
66,677,023
135,892,643
3,765,540
314,785,661
185,244
10,377,418
83,263,800
210,222
94,548,397
109,006,128
1,139,343
30,584,218
16,167,637
et 1 ) 2 =921,525,945

et2
1,791,796
73,758,553
49,711,101
1,243,247
163,131,136
216,465,013
9,177,567
6,755,061
387,369
95,009,857
86,282,549
189,016
118,273,455
96,197.060
18,298,632
65,946

=936,737,358

921 ,525 ,945


= 0.98
936 ,737 ,358

For n = 16, = .05, dL = 1.10 and dU = 1.37


Since D = 0.98 < dL = 1.10, the decision is to reject the null hypothesis and
conclude that there is significant autocorrelation.

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