FME0906 - FUNDAMENTALS OF FUNDAMENTALS MANAGERIAL...

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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. ...
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