Chapter 16: Time Series Forecasting and Index Numbers

Chapter 16
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.

Gain a general understanding time series forecasting techniques.

2.

Understand the four possible components of time-series data.

3.

Understand stationary forecasting techniques.

4.

Understand how to use regression models for trend analysis.

5.

Learn how to decompose time-series data into their various elements.

6.

Understand the nature of autocorrelation and how to test for it.

7.

Understand autoregression in forecasting.

CHAPTER TEACHING STRATEGY
Time series analysis attempts to determine if there is something inherent in the
history of the variable that can be captured in a way that will help us forecast the future
for this 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 16: Time Series Forecasting and Index Numbers

A full gamet of time series forecasting techniques have 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 the students CD-Rom.
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 which includes
trend. A more detailed explanation of Holts method is available on the students CDRom. 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 16.4 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 hopefully removed.
In regression analysis involving data over time, autocorrelation can be a problem.
Because of this, section 16.5 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 16: Time Series Forecasting and Index Numbers

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

Chapter 15: Forecasting and Time Series

KEY TERMS
Autocorrelation
Autoregression
Averaging Models
Cyclical Effects
Decomposition
Deseasonalized Data
Durbin-Watson Test
Error of an Individual
Forecast
Exponential Smoothing
First-Difference Approach
Forecasting
Forecasting Error

Irregular Fluctuations
Mean Absolute Deviation (MAD)
Mean Squared Error (MSE)
Moving Average
Nave Forecasting Methods
Quadratic Regression Model
Seasonal Effects
Serial Correlation
Simple Average
Simple Average Model
Time Series Data
Trend
Weighted Moving Average

SOLUTIONS TO PROBLEMS IN CHAPTER 16

16.1

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

12.30
= 1.367
9

20.43
= 2.27
9

no. forecasts

e2
5.29
2.56
1.96
1.21
0.09
0.81
3.61
4.41
0.49
20.43

Chapter 16: Time Series Forecasting and Index Numbers

16.2
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 =

16.3

e2

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

121
361
144
9
9
64
289
225
441
256
1919

no. forecasts

no. forecasts

125.00
= 12.5
10

1,919
= 191.9
10

Period Value F
1
2
3
4
5
6

19.4
23.6
24.0
26.8
29.2
35.5

16.6
19.1
22.0
24.8
25.9
28.6

Total
MAD =

MSE =

2.8
4.5
2.0
2.0
3.3
6.9
21.5

no. forecasts

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

21.5
= 5.375
4

94.59
= 23.65
4

no. forecasts

e2

Chapter 16: Time Series Forecasting and Index Numbers

16.4

Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Total

Acres
140,000
141,730
134,590
131,710
131,910
134,250
135,220
131,020
120,640
115,190
114,510

MAD =

MSE =

16.5

a.)

b.)

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

no. forecasts

no. forecasts

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

e
1730
6448
5459
1984
1546
1588
3565
11806
10172
4749
49047

49,047
= 4,904.7
10
361,331,847
= 36,133,184.7
10

4-mo. mov. avg.

error

44.75
52.75
61.50
64.75
70.50
81.00

14.25
13.25
9.50
21.25
30.50
16.00

4-mo. wt. mov. avg. error

53.25
56.375
62.875
67.25
76.375
89.125

5.75
9.625
8.125
18.75
24.625
7.875

e2
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

Chapter 16: 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.
16.6

Period

Value

F( =.1)

Error

1
2
3
4
5
6
7
8

211
228
236
241
242
227
217
203

211
213
215
218
220
221
220

23
26
24
7
-4
-17

F( =.8)

Error

Difference

11
7
2
-15
-13
-17

12
19
22
22
9
0

225
234
240
242
230
220

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 the same amount of error in forecasting the value for
period 8. There is no strong argument in favor of either model.
16.7

Period

Value

=.3

Error

=.7

Error

1
2
3
4
5
6
7
8
9

9.4
8.2
7.9
9.0
9.8
11.0
10.3
9.5
9.1

9.4
9.0
8.7
8.8
9.1
9.7
9.9
9.8

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

9.4
8.6
8.1
8.7
9.5
10.6
10.4
9.8

-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
9.6

0.5
1.4
1.1
0.4
-0.9
-0.5

An examination of the forecast errors reveals that for periods 4 through 9,

the 3-month moving average has the smallest error for two periods, = .3 has the
smallest error for three periods, and = .7 has the smallest error for one period.
The results are mixed.

Chapter 16: Time Series Forecasting and Index Numbers

16.8

16.9

(a)
F(a)

(c)
e(a)

(b)
F(b)

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
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

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

2785.46
2878.62
2949.12
3045.50
3180.20
3356.92
3551.62
3722.94

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

(c)
e(b)

126.14
176.91
356.17
445.66
384.89
401.24
208.03
282.36

F(=.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

332.0
657.8
532.0
253.0
213.4
176.1
347.0
495.5
649.9
578.9
575.4
836.0

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 = 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.

e =2023.0

Chapter 16: Time Series Forecasting and Index Numbers

16.10 Simple Regression Trend Model:

y = 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:
y = 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.
16.11 Trend line:

Members = 17,206 62.7 Year

R2 = 80.9%

se = 158.8

F = 63.54, reject the null hypothesis.

Regression Plot
Members = 17206.2 - 62.6814 Year
S = 158.837

R-Sq = 80.9 %

R-Sq(adj) = 79.6 %

17400

17200

Members

17000

16800

16600

16400

16200

16000
0

10

Year

15

Chapter 16: Time Series Forecasting and Index Numbers

10

16.12

Trend Model:
Shipments = -12,138,725 + 6115.6 Year
R2 = 88.2
adjusted R2 = 87.3
se = 9725
t = 9.49 (p = .000)
F = 89.97 (p = .000)
Quadratic Model:
Shipments = 2,434,939,619 2,451,417 Year + 617.01 Year2
R2 = 99.7
adjusted R2 = 99.7
tyear = -21.51 (p = .000)
tyearsq = 21.56 (p = .000)
F = 2016.66 (p = .000)

se = 1544

The graph indicates a quadratic fit rather than a linear fit. The quadratic model
produced an R2 = 99.7 compared to R2 = 88.2 for linear trend indicating a better fit
for the quadratic model.

Chapter 16: Time Series Forecasting and Index Numbers

11

16.13
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 16: Time Series Forecasting and Index Numbers

12

16.14
Month

Ship

12m tot

2yr tot

TC

SI

TCI

Jan(Yr1) 1891

1968.64

2047.09

Feb

1986

1971.49

2054.11

Mar

1987

1945.22

2061.12

Apr

1987

1977.97

2068.14

May

2000

1977.85

2075.16

June

2082

1963.24

2082.18

23822
July

1878

47689

1987.04

94.51 1969.94

2089.19

95.11

47852

1993.83 104.02 2020.52

2096.21

95.11

48109

2004.54 104.06 2006.76

2103.23

95.31

48392

2016.33 101.42 1978.71

2110.25

95.55

48699

2029.13

95.85 2042.25

2117.27

95.84

49126

2046.92

90.92 2002.94

2124.28

96.36

49621

2067.54

93.64 2015.49

2131.30

97.01

49989

2082.88 101.01 2088.63

2138.32

97.41

50308

2096.17 101.42 2081.3

2145.34

97.71

50730

2113.75 100.82 2121.32

2152.35

98.21

51132

2130.50 101.53 2139.04

2159.37

98.66

51510

2146.25 109.31 2212.18

2166.39

99.07

51973

2165.54

2173.41

99.64

52346

2181.08 101.37 2153.99

2180.43 100.03

52568

2190.33 103.55 2181.85

2187.44 100.13

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 2212.25

26110
Aug

2211
26236

Sept

2268

Chapter 16: Time Series Forecasting and Index Numbers

13

26332
Oct

2285

52852

2202.17 103.76 2210.93

2194.46

100.35

53246

2218.58

94.97 2212.35

2201.48

100.78

53635

2234.79

92.94 2235.42

2208.50

101.19

53976

2249.00

97.07 2272.63

2215.51

101.51

54380

2265.83

98.42 2213.71

2222.53

101.95

54882

2286.75

97.17 2175.28

2229.55

102.56

55355

2306.46 100.54 2308.46

2236.57

103.12

55779

2324.13 101.93 2342.76

2243.59

103.59

56186

2341.08 108.03 2384.75

2250.60

104.02

56539

2355.79

96.23 2377.98

2257.62

104.35

56936

2372.33 103.57 2393.65

2264.64

104.76

57504

2396.00 105.34 2428.12

2271.66

105.47

58075

2419.79 103.40 2420.90

2278.68

106.19

58426

2434.42

95.05 2429.70

2285.69

106.51

58573

2440.54

93.30 2450.67

2292.71

106.45

58685

2445.21

95.53 2431.91

2299.73

106.33

58815

2450.63 100.95 2455.93

2306.75

106.24

58806

2450.25 103.91 2492.47

2313.76

105.90

58793

2449.71 104.75 2554.34

2320.78

105.56

58920

2455.00 100.73 2445.61

2327.80

105.46

59018

2459.08 104.59 2425.29

2334.82

105.32

59099

2462.46

2341.84

105.15

26520
Nov

2107
26726

Dec

2077
26909

Jan(Yr3) 2183
27067
Feb

2230

Mar

2222

Apr

2319

May

2369

June

2529

27313
27569
27786
27993
28193
July

2267
28346

Aug

2457
28590

Sept

2524
28914

Oct

2502
29161

Nov

2314

Dec

2277

29265
29308
Jan(Yr4) 2336
29377
Feb

2474

Mar

2546

Apr

2566

29438
29368
29425
May

2473
29495

June

2572

July

2336

29523
29576

94.86 2450.36

Chapter 16: Time Series Forecasting and Index Numbers

Aug

2518

Sept

2454

Oct

2559

Nov

2384

14

59141

2464.21 102.18 2453.08

2348.85

104.91

59106

2462.75

99.64 2360.78

2355.87

104.54

58933

2455.54 104.21 2476.05

2362.89

103.92

58779

2449.13

97.34 2503.20

2369.91

103.34

58694

2445.58

94.25 2480.81

2376.92

102.89

58582

2440.92

97.87 2487.08

2383.94

102.39

58543

2439.29 100.97 2445.01

2390.96

102.02

58576

2440.67 103.33 2468.97

2397.98

101.78

58587

2441.13

99.01 2406.02

2405.00

101.50

58555

2439.79 101.16 2440.66

2412.01

101.15

58458

2435.75 102.31 2349.86

2419.03

100.69

58352

2431.33

94.76 2417.63

2468.16

98.51

58258

2427.42 103.44 2435.74

2475.17

98.07

57922

2413.42 103.34 2401.31

2482.19

97.23

57658

2402.42 105.31 2436.91

2489.21

96.51

57547

2397.79

99.30 2478.40

2496.23

96.06

57400

2391.67

92.45 2379.47

2503.24

95.54

57391

2391.29

99.40 2454.31

2510.26

95.26

57408

2392.00

99.54 2368.68

2517.28

95.02

57346

2389.42

94.92 2252.91

2524.30

94.66

57335

2388.96 100.76 2389.32

2531.32

94.38

57362

2390.08

99.03 2339.63

2538.33

94.16

57424

2392.67 102.23 2329.30

2545.35

94.00

29565
29541
29392
29387
Dec

2305
29307

Jan(Yr5) 2389
29275
Feb

2463
29268

Mar

2522
29308

Apr

2417
29279

May

2468

June

2492

July

2304

29276
29182
29170
Aug

2511

Sept

2494

29088
28834
Oct

2530
28824

Nov

2381
28723

Dec

2211
28677

Jan(Yr6) 2377
28714
Feb

2381
28694

Mar

2268

Apr

2407

May

2367

June

2446

28652
28683
28679
28745

Chapter 16: Time Series Forecasting and Index Numbers

July
Aug
Sept
Oct
Nov
Dec

15

2341
2491
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

Chapter 16: Time Series Forecasting and Index Numbers

16

16.15 Regression Analysis

The regression equation is: Food = 0.628 + 0.690 Shelter
Predictor
Coef
Stdev
t-ratio
p
Constant
0.6283
0.7583
0.83
0.416
Shelter
0.6905
0.1055
6.54
0.000
s = 2.018
Food
14.3
8.5
3.0
6.3
9.9
11.0
8.6
7.8
4.1
2.1
3.8
2.3
3.2
4.1
4.1
5.8
5.8
2.9
1.2
2.2
2.4
2.8
3.3
2.6
2.2
2.1

(e

D =

R-sq = 64.1%
Shelter
9.6
9.9
5.5
6.6
10.2
13.9
17.6
11.7
7.1
2.3
4.9
5.6
5.5
4.7
4.8
4.5
5.4
4.5
3.3
3.0
3.1
3.2
3.2
3.1
3.3
2.9

Y
7.2570
7.4642
4.4260
5.1855
7.6713
10.2262
12.7810
8.7071
5.5308
2.2164
4.0117
4.4950
4.4260
3.8736
3.9426
3.7355
4.3569
3.7355
2.9069
2.6997
2.7688
2.8378
2.8378
2.7688
2.9069
2.6307

R-sq(adj) = 62.6%
e
7.04296
1.03581
-1.42599
1.11446
2.22866
0.77382
-4.18103
-0.90709
-1.43079
-0.11640
-0.21169
-2.19504
-1.22599
0.22641
0.15736
2.06451
1.44306
-0.83549
-1.70690
-0.49975
-0.36880
-0.03785
0.46215
-0.16880
-0.70690
-0.53070

e2
49.6033
1.0729
2.0335
1.2420
4.9669
0.5988
17.4810
0.8228
2.0472
0.0135
0.0448
4.8182
1.5031
0.0513
0.0248
4.2622
2.0824
0.6981
2.9135
0.2497
0.1360
0.0014
0.2136
0.0285
0.4997
0.2816

et 1 ) 2 = 36.09 + 6.06 + 6.45 + 1.24 + 2.12 + 24.55 + 10.72 +

0.27 + 1.73 + 0.01 + 3.93 + 0.94 + 2.11 + 0.00 + 3.64 + 0.39 + 5.19 +
0.76 + 1.46 + 0. 17 + 0.11 + 0.25 + 0.40 + 0.29 + 0.31 = 109.19

(e e
e

t 1

)2

109.19
= 1.12
97.69

Since D = 1.12 is less than dL, the decision is to reject the null hypothesis. There
is significant autocorrelation.

Chapter 16: Time Series Forecasting and Index Numbers

16.16

17

First Differences
Year
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

Food
5.8
5.5
-3.3
-3.6
-1.1
2.4
0.8
3.7
2.0
-1.7
1.5
-0.9
-0.9
0.0
-1.7
0.0
2.9
1.7
-1.0
-0.2
-0.4
-0.5
0.7
0.4
0.1

Shelter
-0.3
4.4
-1.1
-3.6
-3.7
-3.7
5.9
4.6
4.8
-2.6
-0.7
0.1
0.8
-0.1
0.3
-0.9
0.9
1.2
0.3
-0.1
-0.1
0.0
0.1
-0.2
0.4

The regression equation is: Fooddiff = 0.365 + 0.460 Shelterdiff

Predictor
Constant
Shelterdiff
S = 2.069

Coef
0.3647
0.4599

StDev
0.4164
0.1692

R-Sq = 24.3%

Analysis of Variance
Source
DF
Regression
1
Residual Error
23
Total
24

SS
31.642
98.504
130.146

T
0.88
2.72

P
0.390
0.012

R-Sq(adj) = 21.0%
MS
31.642
4.283

F
7.39

P
0.012

The resulting model is much weaker than that obtained with the raw data.

Chapter 16: Time Series Forecasting and Index Numbers

18

16.17 The regression equation is:

Failed Bank Assets = 1,379 + 136.68 Number of Failures
y = 21,881 (million $)

for x= 150:
R2 = 37.9%

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

y
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 16: Time Series Forecasting and Index Numbers

16.18

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

Failure Diff.
4
-27
- 9
-34
-39
-26
-57
-20
15
47
51
8
58
31
5
1
4

19

Asset Diff.
8,085
-1,758
-2,275
-32,257
33,360
- 4,575
71
-49,082
28,113
17,768
-32,813
26,637
14,327
1, 763
72
567
159

Regression Analysis:
The regression equation is: AssetDiff = 412 + 97 FailureDiff
Predictor
Constant
FailureDiff

Coef
412
96.6

StDev
5458
171.1

s = 22,498

R-Sq = 2.1%

t
0.08
0.56

p
0.941
0.581

R-Sq(adj) = 0.0%

Analysis of Variance
Source
Regression
Residual Error
Total

DF
1
15
16

SS
161,413,890
7,592,671,226
7,754,085,116

MS
161,413,890
506,178,082

F
p
0.32 0.581

The Durbin-Watson Statistic, D = 2.93. The table critical d values for this test
are: dL = 1.13 and dU = 1.38. Since the observed D = 2.93 is greater than the
upper critical value, the decision is to fail to reject the null. We do not have
enough evidence to declare that there is significant autocorrelation.
While there is no significant autocorrelation in these data, the regression model
is extremely weak (the p-value for F is .581 and the adjusted R2 is zero).

Chapter 16: Time Series Forecasting and Index Numbers

16.19 Starts
311
486
527
429
285
275
400
538
545
470
306
240
205
382
436
468
483
420
404
396
329
254
288
302
351
331
361
364

lag1
*
311
486
527
429
285
275
400
538
545
470
306
240
205
382
436
468
483
420
404
396
329
254
288
302
351
331
361

20

lag2
*
*
311
486
527
429
285
275
400
538
545
470
306
240
205
382
436
468
483
420
404
396
329
254
288
302
351
331

The model with 1 lag:

Housing Starts = 158 + 0.589 lag 1
F = 13.66

p = .001 R2 = 35.3% adjusted R2 = 32.7%

se = 77.55

The model with 2 lags:

Housing Starts = 401 - 0.065 lag 2
F = 0.11

p = .744 R2 = 0.5% adjusted R2 = 0.0%

Se = 95.73

The model with 1 lag is the best model with a very modest R2 32.7%. The model
with 2 lags has no predictive ability.

Chapter 16: Time Series Forecasting and Index Numbers

16.20 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 which indicates that there is no significant autocorrelation
in this model.
16.21 Year
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000

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

16.22 Year Patents

1980
66.2
1981
71.0
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
99.2
1991 106.8
1992 107.4
1993 109.7
1994 124.1
1995 114.4
1996 122.6
1997 125.5
1998 163.1

a.) Index1950
100.0
139.9
144.0
162.6
200.0
272.8
310.7
327.1
356.6
376.9
388.8
Index
66.7
71.6
63.8
62.5
73.3
77.8
77.5
90.1
85.0
103.3
100.0
107.7
108.3
110.6
125.1
115.3
123.6
126.5
164.4

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

Chapter 16: Time Series Forecasting and Index Numbers

16.23

22

Year

Totals

1985
1.31
1.99
2.14
2.89

1992
1.53
2.21
1.92
3.38

1997
1.40
2.15
2.68
3.10

8.33

9.04

9.33

Index1987 =

8.33
(100) = 100.0
8.33

Index1992 =

9.04
(100) = 108.5
8.33

Index1995 =

9.33
(100) = 112.0
8.33

16.24

Year
1994

1995

1996

1997

1998

1999

2000

2001

2002

1.06
1.47
1.70
6.65

1.21
1.65
1.70
6.90

1.09
1.60
1.80
7.50

1.13
1.62
1.85
8.10

1.10
1.58
1.80
7.95

1.16
1.61
1.82
7.96

1.23
1.78
1.98
8.24

1.23
1.77
1.96
8.21

1.08
1.61
1.94
8.19

Totals 10.88

11.46

11.99

12.70

12.43

12.55

13.23

13.17

12.82

Index1994 =

10.88
(100) = 87.5
12.43

Index1995 =

11.46
(100) = 92.2
12.43

Index1996 =

11.99
(100) = 96.5
12.43

Index1997 =

12.70
(100) = 102.2
12.43

Chapter 16: Time Series Forecasting and Index Numbers

Index1998 =

12.43
(100) = 100.0
12.43

Index1999 =

12.55
(100) = 101.0
12.43

Index2000 =

13.23
(100) = 106.4
12.43

Index2001 =

13.17
(100) = 106.0
12.43

Index2002 =

12.82
(100) = 103.1
12.43

16.25

23

Item

Quantity
1995

Price
1995

Price
2000

Price
2001

Price
2002

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

P1995Q1995 P2000Q1995 P2001Q1995 P2002Q1995

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

Index1997 =

Index1998 =

P
P

2000

Q1995

1995

Q1995

P
P

Q1995

2001

Q1995

1995

Index1999 =

P
P

2002

Q1995

1995

Q1995

(100) =

46.95
(100) = 121.6
38.61

(100) =

49.18
(100) = 127.4
38.61

(100) =

50.72
(100) = 131.4
38.61

Chapter 16: Time Series Forecasting and Index Numbers

16.26
Item

Price
1997

1
2
3

22.50
10.90
1.85

24

Price Quantity Price

2001
2001
2002
27.80
13.10
2.25

13
5
41

Quantity
2002

28.11
13.25
2.35

12
8
44

P1997Q2001 P1997Q2002 P2001Q2001 P2002Q2002

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

Index1998 =

Index1999 =

P
P

2001

Q2001

1997

Q2001

P
P

2002

Q2002

1997

Q2002

16.27 a) The linear model:

F = 219.24

519.15
(100) = 122.8
422.85

(100) =

546.72
(100) = 124.7
438.60

Yield = 9.96 - 0.14 Month

p = .000

The quadratic model:

F = 176.21

(100) =

R2 = 90.9s = .3212
Yield = 10.4 - 0.252 Month + .00445 Month2

p = .000 R2 = 94.4% se = .2582

Both t ratios are significant, for x,

t = - 7.93, p = .000 and for x, 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 16: 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 =

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
= .3385
20

c)
= .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

= .7
F
10.08
10.06
9.49
9.31
9.58
9.56
9.43
8.81
8.50
8.56
8.16

e
.03
.82
.26
.38
.03
.19
.88
.45
.09
.57
.04

25

Chapter 16: 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 .55
8.30 .57
8.13 .74
7.91 .43
7.78 .26
7.70 .22
7.63 .28
7.55 .51
7.40 .52
7.24 .36
7.13 .04
7.14 .08
e = 10.06

MAD=.3 =

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

10.06
= .4374
23

26

.22
.25
.42
.04
.03
.03
.14
.35
.27
.08
.27
.13
5.97
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 16: Time Series Forecasting and Index Numbers

27

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 16: Time Series Forecasting and Index Numbers

16.28

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

16.29

Item
1
2
3
4
5
6
Totals

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

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

1998
3.21
0.51
0.83
1.30
1.67
0.62

1999
3.37
0.55
0.90
1.32
1.72
0.67

2000
3.80
0.68
0.91
1.33
1.90
0.70

2001
3.73
0.62
1.02
1.32
1.99
0.72

2002
3.65
0.59
1.06
1.30
1.98
0.71

8.14

8.53

9.32

9.40

9.29

Index1998 =

P
P

(100) =

8.14
(100) = 100.0
8.14

P
P

(100) =

8.53
(100) = 104.8
8.14

P
P

(100) =

9.32
(100) = 114.5
8.14

P
P

(100) =

9.40
(100) = 115.5
8.14

P
P

(100) =

9.29
(100) = 114.1
8.14

1998
1998

Index1999 =

1999
1998

Index2000 =

2000

1998

Index2001 =

2001

1998

Index2002 =

28

2002

1998

Chapter 16: Time Series Forecasting and Index Numbers

16.30
Item
1
2
3

1999
P
Q
2.75
0.85
1.33

Laspeyres1998:

12
47
20

29

2000
P Q

2001
P
Q

2002
P Q

2.98 9
0.89 52
1.32 28

3.10 9
0.95 61
1.36 25

3.21 11
0.98 66
1.40 32

P1999Q1999

P2002Q1999

33.00
39.95
26.60

38.52
46.06
28.00

99.55

112.58

Totals
Laspeyres Index2002 =

Paasche2001:

P
P

2002

Q1999

1999

Q1999

(100) =

112.58
(100) = 113.1
99.55

P1999Q2001 P2001Q2001

Totals
Paasche Index2001 =

24.75
51.85
33.25

27.90
57.95
34.00

109.85

119.85

P
P

12001
1999

Q2001

Q2001

(100) =

119.85
(100) = 109.1
109.85

Chapter 16: Time Series Forecasting and Index Numbers

16.31
Year

a) moving average
e
F

Quantity

1980
1981
1982
1983
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000

3654
3547
3285
3238
1984
3294
3393
3946
4588
6204
7041
7031
7618
8214
7936
7667
7474
7244
7173
6832
6912

30

3495.33
257.33
3320
3356.67
3281.00
13.00
3284.00
109.00
3335.67
610.33
3544.33 1043.67
3975.67 2228.33
4912.67 2128.33
5944.33 1086.67
6758.67
859.33
7230.00
984.00
7621.00
315.00
7922.67
255.67
7939.00
465.00
7692.33
448.33
7461.67
288.67
7297.00
465.00
7083.00
171.00

e =11,765.33
MADmoving average =

MAD=.2 =
c)

numberforecasts

numberforecasts

b) = .2
F

3654.00
3632.60
3563.08
325.08
36.67
3498.06
178.06
3462.45
168.45
3428.76
35.76
3421.61
524.39
3526.49
1061.51
3738.79
2465.21
4231.83
2809.17
4793.67
2237.33
5241.14
2376.86
5716.51
2497.49
6216.01
1719.99
6560.01
1106.99
6781.41
692.59
6919.93
324.07
6984.74
188.26
7022.39
190.39
6984.31
72.31

e =18,973.91

11,765.33
= 653.63
18

18,973.91
= 1054.11
18

The three-year moving average produced a smaller MAD (653.63) than did
exponential smoothing with = .2 (MAD = 1054.11). Using MAD as the
criterion, the three-year moving average was a better forecasting tool than the
exponential smoothing with = .2.

Chapter 16: Time Series Forecasting and Index Numbers

31

16.32-16.34
Month Chem
Jan(91)
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

Oct

24.115

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

607.85

25.327

94.07

24.884

23.955

288.00
287.65
287.58
288.66
289.12
Nov

23.034
289.74

Dec

22.590
291.24

Jan(92) 23.347
292.76
Feb

24.122
293.39

Mar

25.282

Apr

25.426

May

25.185

June

26.486

July

24.088

Aug

24.672

294.42
294.63
295.42
297.21
298.07
299.72
Sept

26.072
302.03

Oct

24.328
303.56

Nov

23.826
304.29

Chapter 16: Time Series Forecasting and Index Numbers

Dec

24.373

32

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

706.29

29.429

97.16

29.466

24.009

306.27
Jan(93) 24.207
307.00
Feb

25.772

Mar

27.591

307.89
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
314.89

Sept

27.218

Oct

25.650

Nov

25.589

Dec

25.370

316.64
318.67
321.17
322.86
Jan(94) 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
341.52

July

26.746
345.14

Aug

28.966
349.16

Sept

30.783
352.18

Oct

28.594

Chapter 16: Time Series Forecasting and Index Numbers

33

354.11
Nov

28.762

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

1992
95.95
98.77
103.23
103.59
102.44
107.26
97.12
99.05
103.98
96.41
94.07
95.81

1993
94.73
100.59
107.34
104.46
99.93
109.24
94.95
97.51
103.44
96.90
95.98
94.54

356.43
Dec

29.018
359.07

Jan(95) 28.931
361.67
Feb

30.456

Mar

32.372

Apr

30.905

May

30.743

June

32.794

July
Aug
Sept
Oct
Nov
Dec

29.342
30.765
31.637
30.206
30.842
31.090

363.47
364.32
365.93
368.01
370.08

Seasonal Indexing:
Month 1991
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

1994
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

1995
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 16: Time Series Forecasting and Index Numbers

34

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:

y = 22.4233 + 0.144974 x
R2 = .913
Regression Output for Quadratic Trend:
y = 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:
y = 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 16: Time Series Forecasting and Index Numbers

16.35

1999
P
Q

Item

Marg. 0.83
Short. 0.89
Milk 1.43
Coffee 1.05
Chips 3.01
Total 7.21
Index1999 =

2000
P
Q

21
5
70
12
27

0.81
0.87
1.56
1.02
3.06
7.32

22
4
65
11
28

(100) =

7.21
(100) = 100.0
7.21

P
P

(100) =

7.32
(100) = 101.5
7.21

P
P

(100) =

7.43
(100) = 103.05
7.21

1999

2000

2001

1999

P1999Q1999

P2000Q1999

P2001Q1999

17.43
4.45
100.10
12.60
81.27
215.85

17.01
4.35
109.20
12.24
82.62
225.42

17.43
4.35
111.30
12.24
82.62
229.71

Totals

IndexLaspeyres2000 =

IndexLaspeyres2001 =

P
P

2000

Q1999

1999

Q1999

P
P

Q1999

2001

1999

Total

0.83
0.87
1.59
1.01
3.13
7.43

P
P

1999

Index2001 =

2001
P
Q

23
3
68
13
29

1999

Index2000 =

35

Q1999

(100) =

225.42
(100) = 104.4
215.85

(100) =

229.71
(100) = 106.4
215.85

P1999Q2000

P1999Q2001

P2000Q2000

P2001Q2001

19.09
2.67
97.24
13.65
87.29
219.94

18.26
3.56
92.95
11.55
84.28
210.60

18.63
2.61
106.08
13.26
88.74
229.32

18.26
3.48
103.35
11.11
87.64
223.84

Chapter 16: Time Series Forecasting and Index Numbers

IndexPaasche2000 =

IndexPaasche2001 =

P
P

2000

Q2000

1999

Q2000

P
P

1999

16.36

Q2001

2001

Q2001

36

(100) =

229.32
(100) = 104.3
219.94

(100) =

223.84
(100) = 106.3
210.60

y = -7,248,156 + 1,072,187x
y (55) = 51,722,129
R2 = 99.1%

F = 2640.1, p = .000

se = 1,945,100
Durbin-Watson:
n = 26

k=1

= .05

D = 0.10
dL = 1.30 and dU = 1.46
Since D = 0.10 < dL = 1.30, the decision is to reject the null hypothesis.
There is significant autocorrelation.

Chapter 16: Time Series Forecasting and Index Numbers

16.37 Year
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000

Fma

100.2
102.1
105.0
105.9
110.6
115.4
118.6
124.1
128.7
131.9
133.7
133.4
132.0
131.7
132.9
133.0
131.3
129.6

Fwma

103.3
105.9
109.2
112.6
117.2
121.7
125.8
129.6
131.9
132.8
132.7
132.5
132.4
132.2

104.3
107.2
111.0
114.8
119.3
124.0
128.1
131.2
132.7
132.8
132.3
132.4
132.6
132.2

SEMA

SEWMA

53.29
90.25
88.36
132.25
132.25
104.04
62.41
14.44
0.01
1.21
0.04
0.25
1.21
6.76

39.69
67.24
57.76
86.49
88.36
62.41
31.36
4.84
0.49
1.21
0.36
0.36
1.69
6.76

37

SE = 678.80 440.57
MSEma =

MSEwma =

SE
numberforecasts

SE
numberforecasts

686.77
= 49.06
14

449.02
= 32.07
14

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

Chapter 16: Time Series Forecasting and Index Numbers

38

16.38 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.
16.39-16.41:
Qtr

TSCI

4qrtot

8qrtot

TC

SI

TCI

Year1 1 54.019
2 56.495
213.574
3

50.169

52.891

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

97.68

58.186 68.646

480.418 60.052 104.06

243.258

60.177 71.503

211.470
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
2 62.488

Chapter 16: Time Series Forecasting and Index Numbers

3 60.373

492.176 61.522

39

98.13

62.215 74.466

503.728 62.966 100.58

62.676 77.534

512.503 64.063

97.91

63.957 80.708

518.498 64.812 105.51

65.851 83.988

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

248.918
4 63.334
254.810
Year4 1 62.723
257.693
2 68.380
260.805
3 63.256
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 16: Time Series Forecasting and Index Numbers

40

Adjusted Seasonal Indexes:

Quarter

Index

1
2
3
4

98.07
103.84
97.04
101.05

Total

400.00

16.42 y = 81 + 0.849 x
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.

16.43 The regression equation is:

Equity Funds = -591 + 3.01 Taxable Money Markets
R2 = 97.1%

se = 225.9

Equity TaxMkts
Y
44.4
74.5
-366.69
41.2
181.9
- 43.64
53.7
206.6
30.66
77.0
162.5
-101.99
83.1
209.7
39.98
116.9
207.5
33.37
161.5
228.3
95.93
180.7
254.7
175.34
194.8
272.3
228.28
249.0
358.7
488.17
245.8
414.7
656.62
411.6
452.6
770.62
522.8
451.4
767.01
749.0
461.9
798.59
866.4
500.4
914.40
1,269.0
629.7
1,303.33

et
411.091
84.837
23.040
178.991
43.116
83.533
65.568
5.358
-33.482
-239.170
-410.815
-359.017
-244.207
- 49.591
- 47.997
-34.325

et2
168,996
7,197
531
32,038
1859
6,978
4,299
29
1,121
57,202
168,769
128,893
59,637
2,459
2,304
1,178

et et-1
-326.254
- 61.797
155.951
-135.875
40.417
-17.965
-60.210
-38.840
-205.688
-171.645
51.798
114.810
194.616
1.594
13.672

(et et-1)2
106,441.673
3,818.869
24,320.714
18,462.016
1,633.534
322.741
3,625.244
1,508.546
42,307.553
29,462.006
2,683.033
13,181.336
37,875.387
2.541
186.924

Chapter 16: Time Series Forecasting and Index Numbers

1,750.9
2,399.3
2,978.2
4,041.9
3,962.3

761.8
898.1
1,163.2
1,408.7
1,607.2

1,700.68
2,110.66
2,908.07
3,646.52
4,243.60

50.224
288.639
70.131
395.378
-281.301

D =

(e e
e

t 1
2

)2

41

2,522
83,313
4,918
156,323
79,131

84.549
7,148.533
238.415 56,841.712
-218.508 47,745.746
325.247 105,785.611
-676.679 457,894.469

(e

= 969,697

et 1 ) 2 = 961,248.188

961,248.188
= 0.99
969,697

For n = 21 and = .01, dL = 0.97 and dU = 1.16.

Since dL = 0.97 < D = 0.99 < dU = 1.16, the Durbin-Watson test is
inconclusive.

= .1

16.44
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997

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

= .5
e

= .8

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

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

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

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

= 10.26 .

= 4.83

= 3.97

Chapter 16: Time Series Forecasting and Index Numbers

MAD1 =

MAD2 =

MAD3 =

10.26
= .60
17

4.83
= .28
17

3.97
= .23
17

42

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

The forecast for 1998 is:
F(1998) = (.8)(5.15) + (.2)(4.79) = 5.08
16.45 The model is: Bankrupcies = 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

- 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 =

(et et-1)2

et et-1

(e e
e

t 1
2

)2

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

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

=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

Chapter 16: Time Series Forecasting and Index Numbers

43

conclude that there is significant autocorrelation.