Econometrics and Forecasting

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EC314
Econometrics and Forecasting

Introduction

Welcome to EC314 Econometrics and Forecasting. This 5-credit, one-semester course uses econometrics and time series techniques to forecast business and economic models. The prerequisite for this course is EC313 Introductory Econometrics. The course emphasizes both theories and applications. There are five units in this course. Each unit takes about three to five weeks to finish, and the whole course takes approximately 20 weeks to complete. Students are expected to spend around ten hours a week studying this course.

What this course helps you do

This introductory sections sets out the major aims and objectives for EC314. You should read them carefully, and come back to them from time to time as you work through the course so that you can give yourself a 'check-up' -- that is, to see if you are meeting these aims and objectives.

Aims

This course deals with forecasting skills which you will find useful in economics, marketing, and risk management. You will learn how to apply econometrics and time series techniques in forecasting. You will also learn the techniques in the management of forecasting system.

Objectives

After completing this course, you should be able to:

1. Use the time-series models to analyse business and economic data.

2. Perform forecasting using regression and time-series models.

3. Evaluate the forecasts and familiarize yourself with the management of forecasting system.

Course materials

This practical topic sets out the materials you'll need for your study of EC314; in particular, it introduces you to the course's nine study units.

In addition to this Course Guide, the course has the following important components. Please ensure that you have all of these materials available.

Study units

The study units are listed and briefly described below.

• Unit 1 Simple time-series forecasting models

The focus of this unit is to expose you to the basic time-series analysis technique and to help you apply this technique in forecasting. You will learn to identify trends and seasonal and cyclical patterns from data, and apply smoothing methods to make forecasts. You will also learn to perform forecasting using regression models, which will be applied to analysing real world economic and business data. You will learn to apply the time-series models to analyse and forecast the trend and cycle of particular business sectors.

• Unit 2 The Box-Jenkins forecasting models I

In this unit, you will learn about a more sophisticated model for forecasting -- the ARIMA time-series model. You will be introduced to the moving average and autoregressive process, and the concept of stationarity will be discussed.

• Unit 3 The Box-Jenkins forecasting models II

In this unit, you will learn the basic principles of identification and estimation using the ARIMA models, and learn how to apply the model in business forecasting.

• Unit 4 Forecasting in practice

The focus of this unit is offering you a review of practical forecasting techniques, with concrete examples of demand forecasting.

• Unit 5 The management of forecasting

In this unit you will learn to monitor and improve forecast performance. Evaluating and comparing the accuracy of forecasts will also be discussed. You will then see how a set of forecasts may be combined to produce a superior composite forecast. You will also learn how to develop a forecasting system.

In each unit there are self-test questions and practice exercises. Most of these questions are selected from your textbook and the accompanying instruction manual. Make sure that you attempt all the questions to check that you understand the study units.

Some of the data in the study units are formatted in electronic form. There is one CD containing data presented as excel file.

Textbooks

There is one compulsory textbook for this course:

Wilson, J H and Keating, B (2002) Business Forecasting, 4th edn, McGraw-Hill.

Assignment

There will be three Tutor-marked Assignments

Presentation Schedule

The Presentation Schedule included in the course materials gives the dates for completing TMAs, and attending tutorials, and so on.

Assessment

Self-tests

The self-tests in the study units provide a means for self-assessment. They help you better understand the key concepts in the units and check your progress.

Tutor-marked Assignments

There are three assignments in total.

• Assignment 1 covers the material in Unit 1.

• Assignment 2 covers the material in Units 2 and 3.

• Assignment 3 covers the material in Unit 4.

Each assignment consists of a problem set and/or computer exercise. Only the best two out of the three assignments will be counted in your final grade. Your tutor will assess the TMAs in the Assignment File.

Final examination and grading

The final exam will cover all the materials studied in the course. It carries the weight of 50% of the final grade. You will have to answer all the questions in this three-hour closed-book examination. The questions will be similar to those in the assignments and in the exercises provided at the end of each study unit. Some useful formula will be provided. You will need to bring a calculator and be prepared to read statistical tables.

Note that you will also receive a specimen examination well before you must sit the actual exam, so you will have a good chance to prepare.

Your final grading

Assessment type	Marks
Assignments	25% × 2 = 50% (choose the best 2 out of 3)
Examination	50%
TOTAL	100%

Study schedule

The table below is a study schedule for this course:

Unit	Title	Weeks	Assessment activity (end of unit)
1	Simple time-series forecasting models	6	Assignment 1
2	The Box-Jenkins forecasting models I	3
3	The Box-Jenkins forecasting models II	3	Assignment 2
4	Forecasting in practice	3	Assignment 3
5	The management of forecasting	3
	Revision	2
	TOTAL	20	Three assignments

How to get the most from this course

To get the most from this course, you must put serious effort in studying. First, you must read through each study unit and the readings as indicated in the units. The exercises at the end of each unit are not the maximum but the minimum requirement for mastering the material covered in this course. As some of the exercises are demanding, you are strongly recommended to attend tutorials and raise questions whenever you have them. As EC314 is a one-semester course, you should make up a study plan, such as spending five hours a week consistently. Whenever you are stuck, tired, or feel bored with the materials, stop studying and take a break. After you get enough relaxation, go back to the materials to point at which you were stuck, and start thinking them over. Remember, do not make yourself scared of the course, make studying fun and interesting.

Another crucial way to make your study of this course successful is to do more practice exercises. The self-test questions and practical problems in the study units are very useful to help you to understand the key concepts as well as to check your progress. Don't just look at the questions and go directly to the answers. You may find the answer simple, but when you close the book, you will not be able to do the question yourself.

Do not be scared by the mathematics required in EC314. In fact, what you need is nothing more than the secondary school mathematics. In addition, there will be a certain number of computer-assisted exercises in this course. Although the Open University provides the required computation facilities on campus, you are advised to have a personal computer of your own installed with Windows 95 at the very minimum or, even better, more advanced versions such as Windows 2000.

Tutor and tutorials

You will be assigned a tutor for the course. Your tutor is responsible for answering questions raised by students during the tutorial sessions, on the telephone, and via email. Your tutor will also mark your assignments and explain the assignment answers to you. He or she will also be prepared to guide you in the computing part of the course, and will instruct you in how to run regressions using the computer software included with your textbook.

This course provides 14 hours of tutorials. Each study unit usually requires 2-4 hours of tutorials. Again, attending and participating in tutorials is strongly encouraged.

A note about the developer of this course

The course developer, Dr Chan Chi Shing, has a PhD from University of California, San Diego. He was a research economist with the University of Hong Kong University.