Economics 390
Spring 2013
Forecasting Project
You are responsible for an independent forecasting project. Your duties are to choose a monthly or quarterly time series, make a forecast, and evaluate your relative success.
You are required to turn in three reports.
The first report, due in class on Tuesday, February 25, will be a brief description of the variable(s). Describe the source of the data, and where and when you will find future observations. Provide a time-series plot of the past history of the variable(s). Describe which variable and date(s) you plan to forecast. Your project must be turned in at least one day before from the one-step-ahead date you are forecasting.
The second report is your forecast report. It is due at the latest by Tuesday May 6 (in class). You report will include the following
· A description of the data series, historical data, and time-series problems of the series
· A description of your forecasting method
· Presentation of your forecasting model and parameter estimates
· Forecasts of the series for the following year. If your series is monthly, this consists of 12 forecasts. If your series is quarterly, this consists of 4 forecasts.
· Both point forecasts and interval forecasts
The third report, due by Thursday, May 8 (in class), will be a short forecast evaluation, where you compare your one-step-ahead forecast with the actual realization. Did the actual value fall within your forecast interval? Would a decision maker have been wise to follow your forecast?
Timing:
The time-series you are forecasting must have a new realization sometime between when you turn in your forecast report and when you turn in your evaluation report on May 8. For example, the Bureau of Labor Statistics issues the Employment Situation for April 2014 (which includes employment and unemployment estimates for the US) on May 2, 2014. If you pick one of these series (for example the unemployment rate among women, 20 years and over) you need to turn in your forecast report by May 1. If you select a series from the BLS Productivity and Cost report, this is released on May 7, so you can turn in your report on as late as May 6. As another example, if you decide to forecast quarterly U.S. GDP, the first quarter of 2014 will be announced on April 30, so in this case you must turn in your report by April 29.
Data:
One component of a successful project is your choice of variable. Since the project involves a forecast evaluation, it is necessary to know that the forecast period will be unobserved when you submit the second report, but observed by the time you submit the third report (May 8).
In order to make a successful forecast, there needs to be a significant historical record available to you. While there is no unique rule concerning the number of prior observations required, more observations are better than less.
You are free to pick any economic variable, as long as it meets the above criteria. As this is a course in economic forecasting, it needs to be an economic variable (and not, for example, a sports statistic).
One note of caution: Many students are eager to forecast financial series, such as stock prices or exchange rates. This is not recommended. Basic economic theory teaches that changes in asset prices are impossible to forecast, and this turns out to be true in the real world as well. Attempts to forecast the stock market are typically more frustrating than fruitful.
Many economic data sources can be found on the data pages of the resources for economists: link
In particular, the Bureau of Labor Statistics and Bureau of Economic Analysis are good sources
Bureau of Labor Statistics link
For historical data, pick an area (e.g. unemployment/national unemployment rate) then look for “CPS Databases”. Look for “One-screen data search”, select the series and data frequency, and “get data”. You will see a table of numbers. For some series, you can “change output options” to extend the sample. Under “more formating options” you can change the format for downloading.
Bureau of Economic Analysis link
The BEA data is well organized and on their website.