Introduction to Forecasting.ppt

Why use forecasting? A review of forecasting applications Types of forecasting models * * Introduction to Forecasting Outline: What is forecasting? Why use forecasting techniques? Applications of forecasting methods Types of forecasting models Time series vs. cross-sectional data. Initial points: The economics profession is held in low regard in some quarters, partly because there is the widespread perception (if not reality) that economists fail in their most meaningful or potentially useful task, which is to produce accurate forecasts of GDP, inflation, housing starts, stock market movements, interest rates, employment, car sales, imports, . . . . Econometric forecasting has been, to some extent, “oversold.” Which way is the stock market headed, Professor? If I could see the future, I would be on the plane to Las Vegas S P 500, Index of Total Return ActualPredicted Virtually every significant business decision (e.g., decisions to place orders for raw materials, semi-finished articles, or finished goods, borrowing decisions, hiring decisions, decisions to close plants, decisions to open new stores or production facilities, decisions to purchase capital goods, or decisions about near-term production flows) are necessarily based on views of decision-makers about the future course of variables which affect their business. Thus, decision-makers are compelled to form expectations--indeed, to make a forecast-- about future business conditions. Econometric forecasting, for all its shortcomings, beats the alternatives. Operations planning and control. Firms use forecasting for inventory and production management, and sales force management,. Strategic decision making. Forecasting is helpful to decision-making with respect to the development of new products, entry into new geographic markets, and so on. Cost estimation: In making bids for construction projects or the delivery of capital goods such as turbine generators, aircraft, or ships, firms must forecast the