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Homework answers / question archive / A model to forecast quarterly sales (in $100,000s) has been estimated as follows: yt = 0
A model to forecast quarterly sales (in $100,000s) has been estimated as follows: yt = 0.3t+2Q1 +0.8Q2 +5,
where Q1 is the dummy variable for quarter 1, Q2 is the dummy variable for quarter 2, and Q3 is the dummy variable for quarter 3. When all the three dummy variables are 0, we have quarter 4. Therefore quarter 4 is the baseline.
(a) Assuming that the time series used starts at the 1st quarter of 2000 (where t=1) and ends at the 4th quarter of 2012, what would the forecast for the first and third quarter of 2015 be? Show computation please.
(b) What can be inferred from the fact that this forecasting model contains no coefficients for Quarter 3?
Answer:
(a) 13.3 for the first quarter of 2015 and 11.9 for the third quarter of 2015.
(b) Q3 plays no role in predicting quarterly sales
Step-by-step explanation
(a) 13.3 for the first quarter of 2015 and 11.9 for the third quarter of 2015. This was obtained by noting that the first quarter of 2015 corresponds to t = 21 while the third quarter corresponds to t = 23. We simply substitute the value of t into the equation and use Q1 = 1 for the first quarter.
(b) Q3 plays no role in predicting quarterly sales
