ECON 483: Forecasting

Empirical homework 3

The purpose of this homework assignment is to make you familiar with the time series options of EasyReg.

Assignments

  1. Retrieve the quarterly time series SP500 (=S&P 500 index) and Real GDP from the EasyReg database (via the File menu)
  2. Take the one-quarter percentage changes of these variables (via Menu > Input > Transform variables). The transformed variables are:
    • %DIF1[SP500]
    • %DIF1[Real GDP]
  3. Regress %DIF1[Real GDP] on LAG1[%DIF1[Real GDP]], LAG2[%DIF1[Real GDP]], LAG1[%DIF1[SP500]] and LAG2[%DIF1[SP500]], including a constant term and seasonal dummy variables, using the time series observations for quarters 1950.1 through 1990.4 only.
  4. Why does EasyReg include only three seasonal dummy variables?
  5. Test whether there is no seasonal effect.
  6. Test whether the two-quarters lagged explanatory variables can be removed from the model.
  7. Re-estimate the model without the insignificant explanatory variables, using the time series observations for quarters 1950.1 through 1990.4 only.
  8. Compare the forecasts and realizations of %DIF1[Real GDP] for the quarters after 1990.4. Do you think that this is a good forecasting model?

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