Question #62
Reading: Reading 2 Time-Series Analysis
PDF File: Reading 2 Time-Series Analysis.pdf
Page: 29
Status: Unattempted
Question
David Wellington, CFA, has estimated the following log-linear trend model: LN(xt) = b0 + b1t + εt. Using six years of quarterly observations, 2001:I to 2006:IV, Wellington gets the following estimated equation: LN(xt) = 1.4 + 0.02t. The first out-of-sample forecast of xt for 2007:I is closest to:
Answer Choices:
A. 1.88
B. 4.14
C. 6.69
Explanation
Wellington's out-of-sample forecast of LN(xt) is 1.9 = 1.4 + 0.02 × 25, and e1.9 = 6.69. (Six
years of quarterly observations, at 4 per year, takes us up to t = 24. The first time period
after that is t = 25.)