Eco Forecasting 2

ECO 309

Economic Forecasting

Project Part 2

This paper requires content knowledge in Chapters 2 – 5. Please listen to the lectures and read your chapters before starting the work. Follow the step by step directions to prepare an executive summary of your macroeconomic (X) variables (do NOT include the numbers while answering the questions). Please ONLY use the X variables that have significant statistical correlation to your company revenue.

1. Plot your X variables and decide if you have an additive or a multiplicative model as explained in decomposition part of your book.

2. Plot ACF of your X variables and identify trend/seasonality if any. Make sure to do your hypothesis testing for significance of autocorrelation. Do you have trend and/or seasonality?

3. For each X variable, run all three smoothing methods and pick the best one for your data.

4. Go to Time Series>Trend Analysis and try all 4 trend models. Pick the best one and tell me why it is the best one. Copy and paste ONLY the best trend model.

5. Go to Time Series>Decomposition, run both “SEASONALY ONLY” and “SEASONAL + TREND”. Also run both the additive and multiplicative models to confirm what you find in question 1. Which one is the best model, why?

6. For each X variable you are using, make a summary table of each model and the resulting error term. Pick the best overall model and generate 3 out-of-sample forecasts using the BEST overall model.

7. Rerun the best model, STORE your RESIDUALS and run ACF on your residuals and explain what you see.

8. Summarize what you learned for each X variable in 2 sentences.