Economics 827 Economic Forecasting Spring, 1998

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Economics 827

Economic Forecasting - Spring, 1998

Exercise II
Estimation of Single Forecasting Models

July 27, 1999

Due: August 5, 1999
The purpose of this exercise is to provide experience with estimation of Box-Jenkins models for forecasting on several time series. There are two Excel data sets available:
1. stocks.xls. Contains monthly data on total returns on equities for large U.S. corporations, monthly from January, 1926 through December, 1995. The source of this data is the Ibbottson Associates 1996 Yearbook. The name of the single data series on this file is returns
2. exchange.xls. Contains monthly data on nominal exchange rates for 6 currencies and the trade-weighted US dollar nominal exchange rate. The data set runs from January, 1971 to December, 1997. There are fourteen data series on this file: each of the exchange rates and the log of each series. The names and sample periods of the data series are as follows:
Canadian Dollar 71,1 - 97,12 canex qcanex

German Mark 71,1 - 97,12 gerex qgerex

Japanese Yen 71,1 - 97,12 japex qjapex

UK Pound 71,1 - 97,12 ukex qukex

Thai Baht 81,1 - 97,12 thaiex qthaiex

South Korean Won 81,4 - 97,12 korex qkorex

Trade Weighted 71,1 - 97,12 twex qtkwex
Two time series are assigned to each team (one from each data set) as indicated below. Your team assignment is to investigate the autocorrelation properties of each of the time series using the Box-Jenkins analysis in Menurats, make a decision on what you think are the two or three best autoregressive-moving averages representations of these series, and estimate the parameters of the models that you select. Your report should include pictures of any autocorrelation functions that you have utilized, the estimated models that you have constructed, and a discussion of the merits of each of the models as a forecasting model for the particular series.
Team I.

1. US equity returns data over the sample period 26,1 through 59,12

2. Japanese Yen exchange rate or Thai Baht exchange rate

Team II.

1. US equity returns data over the sample period 60,1 through 95,12

2. German DM exchange rate or Trade Weighted exchange rate

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