HW07_sol - Homework 10 Solutions Problem 1 Decomposing a...

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Homework 10 Solutions Page 1 of 4 Problem 1 Decomposing a time series is the process of identifying each of the components (trend, cyclical, seasonal and irregular) that make up the time series (usually observations recorded at fixed time intervals). The information gained from identifying each of the components can be utilized in forecasting. The components can be either additive or multiplicative. Problem 2 The multiplicative decomposition may be more appropriate than an additive decomposition when the variability of the time series increases with the level (the observations have the appearance of a funnel). Problem 3 Part A Capital Spending 200 300 400 500 600 700 19 77 1979 1981 83 85 1987 89 91 1993 Year Billions of Dollars Spending The capital spending appears to trend linearly (R Square = 0.957). Part B Linear trend model: Capital Spending (Billions of Dollars) = 218.5 + 23.9 * Period (1977 = 1, 1993 = 17) Part C The average increase in capital spending (Billions of Dollars) per year since 1977 has been: 6 . 25 16 409 1977 1993 214 623 This is different from the slope ($23.9 Billion dollars per year) provided by the regression model.
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This note was uploaded on 06/18/2011 for the course IEOR 4307 taught by Professor Dr.kosrowdehnad during the Summer '10 term at Columbia.

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HW07_sol - Homework 10 Solutions Problem 1 Decomposing a...

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