The index of industrial production (IPt) is a monthly time series that measures the quantity of industrial commodities produced in a given month.

The index of industrial production (IPt) is a monthly time series that measures the quantity of industrial commodities produced in a given month. This problem uses data on this index for the United States. All regressions are estimated over the sample period 1960:1 through2000:12 (that is, January 1960 through December 2000). Let , Yt=1200xln(IPt/IPt-1), which gives the monthly percentage change in the industrial production index measured in percentage points at an annual rate. Suppose that a forecaster estimates the following AR(4) model for Yt :

.Yt=1.377 + .318Yt-1 + .123Yt-2 + .068Yt-3 + .001Yt-4

Use this AR(4) model to forecast the value of in January 2001 using the following values of Yt for August 2000 through December 2000:

Date	2000:7	2000:8	2000:9	2000:10	2000:11	2000:12
IP	147.595	148.650	148.973	148.660	148.206	147.300

Expert Solution

Rahul Sunny answered 2 years ago

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