Elements of Forecasting

ELEMENTARY FORECASTING focuses on the core techniques of widest applicability. The author illustrates all methods with detailed real-world applications, many of them international in flavor, designed to mimic typical forecasting situations.

Francis X. Diebold is Lawrence R. Klein Professor of Economics and Statistics and Director of the Institute for Economic Research at the University of Pennsylvania, and a Research Associate at the National Bureau of Economic Research in Cambridge, Massachusetts.

Introduction to Forecasting: Applications, Methods, Books, Journals, and Software

1

(31)

Forecasting in Action

1

(3)

Forecasting Methods: An Overview of the Book

4

(2)

Useful Books, Journals, Software, and Online Information

6

(3)

Looking Ahead

9

(22)

Problems and Complements

9

(3)

Concepts for Review

12

(1)

References and Additional Readings

12

(1)

Appendix: The Linear Regression Model

13

(14)

Additional Problems and Complements

27

(2)

Additional Bibliographical and Computational Notes

29

(1)

Additional Concepts for Review

30

(1)

Six Considerations Basic to Successful Forecasting

31

(18)

The Decision Environment and Loss Function

32

(5)

The Forecast Object

37

(1)

The Forecast Statement

38

(4)

The Forecast Horizon

42

(2)

The Information Set

44

(1)

Methods and Complexity, the Parsimony Principle, and the Shrinkage Principle

44

(1)

Concluding Remarks

45

(4)

Problems and Complements

46

(1)

Bibliographical and Computational Notes

47

(1)

Concepts for Review

47

(1)

References and Additional Readings

48

(1)

Statistical Graphics for Forecasting

49

(23)

Why Graphical Analysis Is Important

49

(4)

Simple Graphical Techniques

53

(5)

Elements of Graphical Style

58

(4)

Application: Graphing Four Components of Real GDP

62

(3)

Concluding Remarks

65

(7)

Problems and Complements

66

(4)

Bibliographical and Computational Notes

70

(1)

Concepts for Review

70

(1)

References and Additional Readings

70

(2)

Modeling and Forecasting Trend

72

(31)

Modeling Trend

72

(9)

Estimating Trend Models

81

(1)

Forecasting Trend

82

(1)

Selecting Forecasting Models Using the Akaike and Schwarz Criteria

83

(6)

Application: Forecasting Retail Sales

89

(14)

Problems and Complements

98

(3)

Bibliographical and Computational Notes

101

(1)

Concept for Review

101

(1)

References and Additional Readings

101

(2)

Modeling and Forecasting Seasonality

103

(13)

The Nature and Sources of Seasonality

103

(3)

Modeling Seasonality

106

(2)

Forecasting Seasonal Series

108

(1)

Application: Forecasting Housing Starts

109

(7)

Problems and Complements

113

(2)

Bibliographical and Computational Notes

115

(1)

Concepts for Review

115

(1)

References and Additional Readings

115

(1)

Characterizing Cycles

116

(27)

Covariance Stationary Time Series

117

(6)

White Noise

123

(5)

The Lag Operator

128

(2)

Wold's Theorem, the General Linear process, and Rational Distributed Lags

130

(3)

Estimation and Inference for the Mean, Autocorrelation, and Partial Autocorrelation functions

133

(4)

Application: Characterizing Canadian Employment Dynamics

137

(6)

Problems and Complements

140

(1)

Bibliographical and Computational Notes

141

(1)

Concepts for Review

142

(1)

References and Additional Readings

142

(1)

Modeling Cycles: MA, AR, and ARMA Models

143

(40)

Moving-Average (MA) Models

144

(8)

Autoregresive (AR) Models

152

(9)

Autoregressive Moving-Average (ARMA) Models

161

(1)

Application: Specifying and Estimating Models for Employment forecasting

162

(21)

Problems and Complements

173

(5)

Bibliographical and Computational Notes

178

(2)

Concepts for Review

180

(1)

References and Additional Readings

181

(2)

Forecasting Cycles

183

(24)

Optimal Forecasts

183

(1)

Forecasting Moving-Average Processes

184

(5)

Making the Forecasts Operational

189

(1)

The Chain Rule of Forecasting

190

(4)

Application: Forecasting Employment

194

(13)

Problems and Complements

198

(6)

Bibliographical and Computational Notes

204

(1)

Concepts for Review

205

(1)

References and Additional Readings

205

(2)

Putting It All Together: A Forecasting Model with Trend, Seasonal, and Cyclical Components

207

(34)

Assembling What We Have learned

207

(3)

Application: Forecasting Liquor Sales

210

(16)

Recursive Estimation Procedures for Diagnosing and Selecting Forecasting Models

226

(7)

Liquor Sales, Continued

233

(8)

Problems and Complements

235

(4)

Bibliographical and Computational Notes

239

(1)

Concepts for Review

240

(1)

References and Additional Readings

240

(1)

Forecasting with Regression Models

241

(46)

Conditional Forecasting Models and Scenario Analysis

242

(1)

Accounting for Parameter Uncertainty in Confidence Intervals for Conditional Forecasts

242

(3)

Unconditional Forecasting Models

245

(1)

Distributed Lags, Polynomial Distrusted Lags, and Rational Distributed Lags

246

(2)

Regressions with Lagged Dependent Variables, Regressions with ARMA Disturbances, and Transfer Function Models

248

(4)

Vector Autoregressions

252

(1)

Predictive Causality

253

(2)

Impulse-Response Functions and Variance Decompositions

255

(4)

Application: Housing Stars and Completions

259

(28)

Problems and Complements

276

(6)

Bibliographical and Computational Notes

282

(1)

Concepts for Review

283

(1)

References and Additional Readings

284

(3)

Evaluating and Combining Forecasts

287

(36)

Evaluating a Single Forecast

287

(4)

Evaluating Two or More Forecasts: Comparing Forecast Accuracy

291

(3)

Forecast Encompassing and Forecast Combination

294

(5)

Application: Overseas Shipping Volume on the Atlantic East Trade Lane

299

(24)

Problems and Complements

314

(6)

Bibliographical and Computational Notes

320

(1)

Concepts for Review

320

(1)

References and Additional Readings

320

(3)

Unit Roots, Stochastic Trends, ARIMA Forecasting Models, and Smoothing

323

(50)

Stochastic Trends and Forecasting

323

(8)

Unit Roots: Estimation and Testing

331

(9)

Application: Modeling and Forecasting the Yen/Dollar Exchange Rate

340

(12)

Smoothing

352

(6)

Exchange Rates, Continued

358

(15)

Problems and Complements

361

(6)

Bibliographical and Computational Notes

367

(2)

Concepts for Review

369

(1)

References and Additional Readings

370

(3)

Bibliography

373

(10)

Name Index

383

(3)

Subject Index

386

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Elements of Forecasting

Summary

Author Biography

Table of Contents

Supplemental Materials