Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: FUNDAMENTALS OF FUNDAMENTALS MANAGERIAL MANAGERIAL ECONOMICS ECONOMICS 9th Edition By Mark Hirschey Chapter 6 Forecasting Chapter 6 OVERVIEW Forecasting Applications l Qualitative Analysis l Trend Analysis and Projection l Business Cycle l Exponential Smoothing l Econometric Forecasting l Judging Forecast Reliability l Choosing the Best Forecast Technique Technique l l macroeconomic forecasting l microeconomic forecasting l qualitative analysis l personal insight l panel consensus l delphi method l survey techniques l trend analysis l secular trend l cyclical fluctuation l seasonality seasonality l irregular or random influences l linear trend analysis Chapter 6 KEY CONCEPTS l growth trend analysis l business cycle l economic indicators l composite index l economic recession l economic expansion l exponential smoothing l one-parameter (simple) exponential smoothing l two-parameter (Holt) exponential smoothing l three-parameter (Winters) exponential smoothing l econometric methods l identities l behavioral equations l forecast reliability l test group l forecast group l sample mean forecast error Forecasting Applications l Macroeconomic Applications l l Microeconomic Applications l Predictions of economic activity at the national or international level, e.g., national inflation or employment. inflation Predictions of company and industry performance, e.g., business profits. performance, l Forecast Techniques l Qualitative analysis. l Trend analysis and projection. Exponential smoothing. l Econometric methods. l l Expert Opinion l Qualitative Analysis l Survey Techniques l Informed personal insight is always useful. useful. l Panel consensus reconciles different views. different l Delphi method seeks informed consensus. consensus. Random samples give population profile. profile. l Stratified samples give detailed profiles of population segments. profiles l Secular trends show fundamental patterns of growth or decline. patterns Trend Analysis and Projection Projection l Cyclical fluctuations show variation according to macroeconomic according conditions. conditions. l Constant unit growth is linear. l Constant percentage growth is exponential. exponential. l Seasonal variation due to weather or custom is often important, e.g., custom summer demand for soda. l Random variation can be notable. l Cyclical normal goods have εI > 1, e.g., housing. housing. The Business Cycle is a rhythmic pattern of economic rhythmic expansion and contraction. expansion l Economic indicators help forecast the economy. forecast l Business Cycle l Economic recessions are periods of declining economic periods activity. activity. Leading indicators, e.g., stock prices. prices. l Coincident indicators, e.g., production. production. l Lagging indicators, e.g., unemployment. unemployment. l Exponential Smoothing l One-parameter Exponential Smoothing Smoothing l l Two-parameter Exponential Smoothing Smoothing l Used to forecast relatively stable activity. Used to forecast relatively stable growth. growth. l Three-parameter Exponential Smoothing Smoothing l l Practical Use of Exponential Smoothing Techniques Smoothing Used to forecast irregular growth. Econometric Forecasting l Advantages of Econometric Methods Methods l l Single Equation Models l Models can benefit from economic insight. insight. l Forecast error analysis can improve models. improve Show how Y depends on X variables. variables. l Multiple-equation Systems l Show how many Y variables depend on several X variables. depend l Tests of Predictive Capability l Judging Forecast Judging Reliability Reliability l Correlation Analysis l Consistency between test and forecast sample suggests forecast predictive accuracy. predictive High correlation indicates predictive accuracy. predictive l Sample Mean Forecast Error Analysis Analysis l Low average forecast error points to predictive accuracy. to Choosing the Best Forecast Technique Technique l Data Requirements l Time Horizon Problems l Scarce data mandates use of simple forecast methods. simple l Complex methods require extensive data. extensive l l Role of Judgment l Short-run versus long-run. Everybody forecasts. l Better forecasts are useful. ...
View Full Document

This note was uploaded on 12/30/2010 for the course ACC MG taught by Professor Dr.leiter during the Spring '10 term at Andrew Jackson.

Ask a homework question - tutors are online