Professional Documents
Culture Documents
Chap 19
Chap 19
Chap 19
Chapter 19
Aggregate
Price Indexes
Unweighted Weighted
aggregate aggregate
price index price indexes
Laspeyres Index
Statistics for Business and
Economics, 6e © 2007 Pearson
Education, Inc. 7
Unweighted
Aggregate Price Index
▪ Unweighted aggregate price index for period
t for a group of K items:
i = item
t = time period
K = total number of items
12
The Runs Test for Randomness
13
The Runs Test for Randomness
(continued
)
▪ Consider n time series observations
▪ Let R denote the number of runs in the
sequence
▪ The null hypothesis is that the series is random
▪ Appendix Table 14 gives the smallest
significance level for which the null hypothesis
can be rejected (against the alternative of
positive association between adjacent
Statisticsobservations) as a function of R and n
for Business and
Economics, 6e © 2007 Pearson
Education, Inc. 14
The Runs Test for Randomness
(continued
)
▪ If the alternative is a two-sided hypothesis on
nonrandomness,
▪ the significance level must be doubled if it is
less than 0.5
▪ if the significance level, α, read from the table
is greater than 0.5, the appropriate
significance level for the test against the two-
sided alternative is 2(1 - α)
Statistics for Business and
Economics, 6e © 2007 Pearson
Education, Inc. 15
Counting Runs
Sales
Median
Time
--+--++++-----++++
Runs: 1 2 3 4 5
6
Statistics for Business and
Economics, 6e © n 2007
= 18 Pearson
and there are R = 6 runs
Education, Inc. 16
Runs Test Example
OOO U OO U O UU OO UU OOOO UU O UU
OOO UUU OOOO UU OO UUU O U OO UUUUU
OOO U O UU OOO U OOOO UUU O UU OOO U
OO UU O U OO UUU O UU OOOO UUU OOO
Time Series
t re n d
Sales U pw a r d
Time
26
Trend Component
(continued
)
▪ Trend can be upward or downward
▪ Trend can be linear or non-linear
Sales Sales
Time Time
Downward linear trend Upward nonlinear trend
27
Seasonal Component
Sales
Summe
Winte r
Summe r
Winte r Spring Fall
r
Spring Fall
Statistics for Business and
Economics, 6e © 2007 Pearson
Time (Quarterly)
Education, Inc. 28
Cyclical Component
32
(2m+1)-Point Moving Average
33
Moving Averages
▪ Example: Five-year moving average
▪ First average:
▪ Second average:
▪ for
Statistics etc.
Business and
Economics, 6e © 2007 Pearson
Education, Inc. 34
Example: Annual Data
Year Sales
1 23
2 40
3 25 …
4 27
5 32
6 48
7 33
8 37 …
9 37
10 50
11 40
Statistics
etc…
foretc…
Business
and
Economics, 6e © 2007 Pearson
Education, Inc. 35
Calculating Moving Averages
▪ Let m = 2 5-Year
Average Moving
Year Sales Year Average
1 23 3 29.4
2 40 4 34.4
3 25 5 33.0
4 27 6 35.4
5 32 7 37.4
6 48 8 41.0
7 33 9 39.4
8 37 etc… … …
9 37
Statistics
10 for ▪ and
50 Business Each moving average is for a
Economics,
11 406e © 2007consecutive
Pearson block of (2m+1) years
Education, Inc. 36
Annual vs. Moving Average
▪ The 5-year
moving average
smoothes the
data and shows
the underlying
trend
4-Quarter Centered
Average Moving Centered Moving
Period Average Period Average
2.5 28.75 3 29.88
3.5 31.00 4 32.00
4.5 33.00 5 34.00
5.5 35.00 etc… 6 36.25
6.5 37.50 7 38.13
7.5 38.75 8 39.00
Statistics for Business
8.5
and
39.25 9 40.13
Economics, 6e9.5 © 200741.00
Pearson
Education, Inc. 39
Calculating the
Ratio-to-Moving Average
1 23
2 40
3 25 29.88 83.7
4 27 32.00 84.4
5 32 34.00 94.1
6 48 36.25 132.4
7 33 38.13 86.5
8 37 39.00 94.9
9 37 40.13 92.2
10 50 etc… etc…
Statistics
11
for Business
40
and
… …
Economics,
… 6e
… © 2007… Pearson …
Education, Inc. 41
Calculating Seasonal Indexes
(continued)
Centered Ratio-to-
Moving Moving
Quarter Sales Average Average
1 23
Fall 2 40 1. Find the median
3 25 29.88 83.7 of all of the
4 27 32.00 84.4
same-season
5 32 34.00 94.1
6 48 36.25 132.4
values
Fall 2. Adjust so that
7 33 38.13 86.5
8 37 39.00 94.9 the average over
9 37 40.13 92.2 all seasons is
10 50 etc… etc…
Statistics
Fall for Business and 100
11 40 … …
Economics,
… 6e
… © 2007… Pearson …
Education, Inc. 42
Interpreting Seasonal Indexes
▪ Suppose we get these
seasonal indexes:
Season
Seasonal ▪ Interpretation:
Index
Spring sales average 82.5% of the
Spring 0.825 annual average sales
Winter 0.945
Statistics for Business and
Economics, 6e © Σ =2007
4.000Pearson
-- four seasons, so must sum to 4
Education, Inc. 43
Exponential Smoothing
where:
= exponentially smoothed value for period t
= exponentially smoothed value already
computed for period i - 1
Statistics for Business and value in period t
xt = observed
Economics, 6e © α2007 Pearson
= weight (smoothing coefficient), 0 < α < 1
Education, Inc. 46
Exponential Smoothing Example
▪ Suppose we use weight α = .2
Time Forecast
Sales Exponentially Smoothed
Period from prior
(Yi) Value for this period (Ei)
(i) period (Ei-1)
= x1
1 23 -- 23 since no
2 40 23 (.2)(40)+(.8)(23)=26.4 prior
3 25 26.4 (.2)(25)+(.8)(26.4)=26.12 information
4 27 26.12 (.2)(27)+(.8)(26.12)=26.296 exists
5 32 26.296 (.2)(32)+(.8)(26.296)=27.437
6 48 27.437 (.2)(48)+(.8)(27.437)=31.549
7 33 31.549 (.2)(48)+(.8)(31.549)=31.840
8 37 31.840 (.2)(33)+(.8)(31.840)=32.872
9
Statistics 37
for Business32.872
and (.2)(37)+(.8)(32.872)=33.697
10 50 33.697 (.2)(50)+(.8)(33.697)=36.958
Economics,
etc.
6e ©
etc.
2007 Pearson
etc. etc.
Education, Inc. 47
Sales vs. Smoothed Sales
▪ Fluctuations
have been
smoothed
▪ NOTE: the
smoothed value in
this case is
generally a little low,
since the trend is
upward sloping and
the weighting factor
is only .2
Statistics for Business and
Economics, 6e © 2007 Pearson
Education, Inc. 48
Forecasting Time Period (t + 1)
Where
Statistics for Business and is the smoothed level of the series, Tt is the s
Economics, 6e © 2007 of the series, and Ft is the smoothed seasonal adjustme
Pearson
Education, Inc. 53
Forecasting with the Holt-Winters
Method: Seasonal Series
(continued)
▪ where
▪ γ, φ1 φ2, . . .,φp are fixed parameters
▪ εt are random variables that have
▪ mean 0
Statistics for▪ Business
constant variance
and
Economics,▪6eand©are uncorrelated
2007 Pearson with one another
Education, Inc. 56
Autoregressive Models
(continued)
is a minimum
Year Units
1999 4
2000 3
2001 2
2002 3
2003 2
2004 2
2005 4
2006 6
Statistics for Business and
Economics, 6e © 2007 Pearson
Education, Inc. 59
Autoregressive Model:
Example Solution
▪ Develop the 2nd order Year xt xt-1 xt-2
table 99 4 -- --
00 3 4 --
▪ Use Excel to estimate 01 2 3 4
a regression model 02 3 2 3
03 2 3 2
Excel Output 04 2 2 3
05 4 2 2
06 6 4 2
▪ Choose p
▪ Form a series of “lagged predictor” variables
xt-1 , xt-2 , … ,xt-p
▪ Run a regression model using all p
variables
▪ Test model for significance
▪ Use model for forecasting
Statistics for Business and
Economics, 6e © 2007 Pearson
Education, Inc. 62
Chapter Summary