Chapter 19Time-Series Analysis and Forecasting.ppt

Chapter 19 Time-Series Analysis and Forecasting Chapter Goals After completing this chapter, you should be able to: Compute and interpret index numbers Weighted and unweighted price index Weighted quantity index Test for randomness in a time series Identify the trend, seasonality, cyclical, and irregular components in a time series Use smoothing-based forecasting models, including moving average and exponential smoothing Apply autoregressive models and autoregressive integrated moving average models Index Numbers Index numbers allow relative comparisons over time Index numbers are reported relative to a Base Period Index Base period index = 100 by definition Used for an individual item or measurement Single Item Price Index Consider observations over time on the price of a single item To form a price index, one time period is chosen as a base, and the price for every period is expressed as a percentage of the base period price Let p0 denote the price in the base period Let p1 be the price in a second period The price index for this second period is Index Numbers: Example Airplane ticket prices from 1995 to 2003: Index Numbers: Interpretation Prices in 1996 were 90% of base year prices Prices in 2000 were 100% of base year prices (by definition, since 2000 is the base year) Prices in 2003 were 120% of base year prices Aggregate Price Indexes An aggregate index is used to measure the rate of change from a base period for a group of items Unweighted Aggregate Price Index Unweighted Aggregate Price Index: Example Unweighted total expenses were 18.8% higher in 2004 than in 2001 Weighted Aggregate Price Indexes Laspeyres Price Index Laspeyres Quantity Index The Runs Test for Randomness The runs test is used to determine whether a pattern in time series data is random A run is a sequence of one or more occurrences above or below the median Denote observations above the median with “+” signs and observations below the median with “-” signs The Runs Test for Rand