Economic Forecasting

Economics 309

Applied Financial and Economic Forecasting

Professor: Stanley Holmes, Ph.D.

Email: [email protected]

Office: BA 132D

Phone: (903) 468-6029 or (903) 365-7190

Fax: (903) 886-5601

Semester Project

The objective of the project is to simulate a problem you might face in your first job or business—developing the best 2 year forecast for company sales. Forecasting is an important process in almost all businesses and is an important skill to possess as an employee. The project is due by midnight Central Time on 12/2/2013. You are strongly encouraged to spread the work throughout the semester.

1. Selecting independent (X) variables for your project

Hopefully you have all passed this stage. You need to pick X variable quarterly data sets. Make sure the data are NOT seasonally adjusted. The data relationships should be logical and not spurious. For example, do not use the price of hamburger to forecast auto sales.

2. Writing an abstract

After you pick your topic, it is a good idea to write a brief abstract to help focus your thoughts. The abstract should not be more than a page. It should include

(i) State your forecasting problem- develop the best forecast of each variable.

(ii) Information about and description of your data

(iii) Description of your proposed models

3. Body of the paper

The paper will contain detailed explanations of your thought processes and methodology. At every stage you need to answer the following questions for each variable:

(i) What did you do (ex: Winter’s method with these parameter values…)

(ii) Why did you do it?

(iii) What did you find? (Interpretation of your results)

(iv) What is your conclusion?

Remember this is a business project report for your company – Do Not Show failed model attempts. Show only the best model for each variable for each forecast method.

4. Methodology

The body of your paper will include all four major forecasting techniques:

(i) Smoothing for each X variable (Chapters 8): You need explain what, why, how etc.

(ii) Box-Jenkins for each X variable (Chapters 9, 10, 11, 12):

(iii) Decomposition for each X variable (Chapter 7)

(iv) Multiple Regression forecast of the sales variable (Y) (Chapter 3, 4, 5 and 6): You will need other variable(s) to help explain the variation in the sales variable of interest. You need to start looking for those explanatory (X) variables!!

5. Appendix

Your appendix should contain all the relevant supporting printouts such as the tests, plots, graphs etc. that were not used in the discussion in the body of the presentation. It is better to divide the appendix into parts where each part is representing the output from each methodology (ex: Appendix A: Variable Data and citations, Appendix B: X variable outputs, Appendix C: Sales Revenue outputs). Don’t forget to name or number the appendices, you will need to refer to them when you are talking about a specific methodology.

6. Final Report

Your final report should include an executive summary of your findings which will include the conclusions (Which of the techniques works best and why for each X variable?). You can add the results to your abstract and make the abstract into an executive summary. You need to have an introduction to talk about your topic in greater length. It will include above sections 3, 4 and 5 and a conclusion . Be detailed and complete in all your sections. This is a case of more is better than less as you explain to me what you have done.

� Please remember that there is NOT one right way of preparing a paper. Be precise, explain everything in detail and be structured. The outline is ONLY to remind you about the required parts; its arrangement is completely up to you.