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Economic polls and forecasting

1. (a) What is forecasting? Why is it so important in the management of business firms and other enterprises? (b) What are the different types of forecasting? (c) How can the firm determine the most suitable forecasting method to use?

2. (a)What are qualitative forecasts? What are the most important forms of qualitative forecast? (b) What are the most important opinion polls of future economic activities? Why is gaining a foreign perspective important? How do firms usually go about gaining this?

5. Using the index (185=100) on housing starts in the United States per year from 1986 to 1997 given in the table below, forecast the index for 1998 a three-year and a five year moving average. Which of your estimates is better if the actual index of housing starts in the United States for 1998 is 1963?

Index of House Starts in the United States: 1986 to 19997 (with 1985=100)

1986 1987 1988 1989 1990 1991

116 122 121 121 111 97

1992 1993 1994 1995 19996 1997

113 125 146 142 156 162

8. The following table presents the monthly sales index of breakfast cereals of the Tasty Food Company for 2000 and three other time series for the same period. Indicate which time series is a (a) coincident indicator, (b) leading indicator ( and the lead time).

Month

1 2 3 4 5 6
Index of
Cereal sales 110 130 125 120 130 135

Time series A 50 60 56 54 60 62

Times series B 140 130 145 150 170 160

Time series C 100 100 120 115 110 100

Month

7 8 9 10 11 12

Index of
Cereal sales 150 140 150 130 120 110

Times series A 70 65 70 60 54 50

Time series B 165 170 145 143 136 153

Time series C 125 120 125 115 110 100

Solution Preview

Forecasting methods predict future conditions. It is important for retail stores, who must have the right amount of inventory on hand. If they have too little, they will lose sales; too much, and they tie up their working capital in goods that don't sell quickly. There are of course many other applications you could mention, such as hiring employees.

Quantitative methods are grouped into one of two categories: time-series (or historical data) analysis and causal methods. Time-series analysis relies on historical data and attempts to project historical patterns into the future, assuming that the same pattern will continue. Causal methods attempt to define relationships between the variable of interest and the value of related explanatory variables.

The field of forecasting also includes qualitative forecasting methods. These are used when historical data are not available. Two of the most important types are professional opinion and market ...

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