Question

In: Economics

The following table reports the Consumer Pirce Index for the Los Angeles area on a monthly...

The following table reports the Consumer Pirce Index for the Los Angeles area on a monthly basis from January 1998 to December 2000 (base year=1982-1984). Eliminating the data for 2000, use Excel to forecast the index for all of 2000 using a three-and -six month average. Which provides a better forecast for 2000 using the data provided?

Salvatore Chapter 6 Appendix Problem 3 (p.261)
Time CPI forecast(w=0.3) (A-F)^2 forecast(w=0.7) (A-F)^2
Jan-98 161.0 166.63 166.63
Feb-98 161.1 164.94
Mar-98 161.4 163.79
Apr-98 161.8 163.07
May-98 162.3 162.69
Jun-98 162.2 162.57
Jul-98 162.1 162.46
Aug-98 162.6 162.35
Sep-98 162.6 162.43
Oct-98 163.2 162.48
Nov-98 163.4 162.70
Dec-98 163.5 162.91
Jan-99 164.2 163.08
Feb-99 164.6 163.42
Mar-99 165.0 163.77
Apr-99 166.6 164.14
May-99 166.2 164.88
Jun-99 165.4 165.28
Jul-99 165.8 165.31
Aug-99 166.3 165.46
Sep-99 167.2 165.71
Oct-99 167.2 166.16
Nov-99 167.1 166.47
Dec-99 167.3 166.66
Jan-00 167.9 166.85 1.10
Feb-00 169.3 167.17 4.55
Mar-00 170.7 167.81 8.37
Apr-00 170.6 168.67 3.71
May-00 171.1 169.25 3.41
Jun-00 171.0 169.81 1.42
Jul-00 171.7 170.16 2.36
Aug-00 172.2 170.63 2.48
Sep-00 173.3 171.10 4.85
Oct-00 173.8 171.76 4.17
Nov-00 173.5 172.37 1.28
Dec-00 173.5 172.71 0.62

Solutions

Expert Solution

Time CPI 3-Month Moving Average 6-Month Moving Average Error for 3-M MA Absolute Error for 3-M MA Error for 6-M MA Absolute Error for 6-M MA
Jan-98 161
Feb-98 161.1
Mar-98 161.4
Apr-98 161.8
May-98 162.3
Jun-98 162.2
Jul-98 162.1
Aug-98 162.6
Sep-98 162.6
Oct-98 163.2
Nov-98 163.4
Dec-98 163.5
Jan-99 164.2
Feb-99 164.6
Mar-99 165
Apr-99 166.6
May-99 166.2
Jun-99 165.4
Jul-99 165.8
Aug-99 166.3
Sep-99 167.2
Oct-99 167.2
Nov-99 167.1
Dec-99 167.3
Jan-00 167.9 167.2 166.8 0.7 0.7 1.1 1.1
Feb-00 169.3 167.4 167.2 1.9 1.9 2.1 2.1
Mar-00 170.7 168.2 167.7 2.5 2.5 3.0 3.0
Apr-00 170.6 169.3 168.3 1.3 1.3 2.3 2.3
May-00 171.1 170.2 168.8 0.9 0.9 2.3 2.3
Jun-00 171 170.8 169.5 0.2 0.2 1.5 1.5
Jul-00 171.7 170.9 170.1 0.8 0.8 1.6 1.6
Aug-00 172.2 171.3 170.7 0.9 0.9 1.5 1.5
Sep-00 173.3 171.6 171.2 1.7 1.7 2.1 2.1
Oct-00 173.8 172.4 171.7 1.4 1.4 2.2 2.2
Nov-00 173.5 173.1 172.2 0.4 0.4 1.3 1.3
Dec-00 173.5 173.5 172.6 0.0 0.0 0.9 0.9
MAD for 3 month moving average = (sum of the absolute errors)/no. of observation
MAD for 3 month moving average = (.7+1.9+2.5+1.3+.9+.2+.8+.9+1.7+1.4+.4+0)/10
MAD for 3 month moving average = 1.27
MAD for 6 month moving average = (sum of the absolute errors)/no. of observation
MAD for 6 month moving average = (1.1+2.1+3.0+2.3+2.3+1.5+1.6+1.5+2.1+2.2+1.3+.9)/10
MAD for 6 month moving average = 2.19

Since MAD is greater for the 6 month moving average, than the 3 month moving average, then it is good to go with the 3 month moving average that represents superior accuracy in the forecast.

Rahul Sunny answered 2 years ago
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