FORECASTING AND BUSINESS ANALYSIS

FORECASTING AND BUSINESS ANALYSIS

Assignment 2 – ECON 2007

An electronic copy of your assignment is to be submitted online by
the due date. No hard copy is required.
There is a penalty of 10% of the total mark for late submission of
each day. Assignments submitted on the due date but after 5PM are
considered as one day late.
Executive Summary/Abstract: Briefly describe what your report is
about. Summarise the results.
Introduction: Introduce the topic.
Data, Model & Method:
-Data Description: What are RGRT, AWE and UR? Where do you get
all the data? How many observations do you have?…
– Data must not be in different frequencies convert UR into
quarterly data by taking the AVERAGE across the three months in a
quarter, and convert RGRT by taking the SUMMATION. For example:
Time UR (monthly) UR (quarterly)
Jun 6
July 7
Aug 6 (6+7+6)/3 = 6.3
Sept 5
Oct 4
Nov 6 (5+4+6)/3 = 5
Time RGRT (monthly) RGRT (quarterly)
Jun 600
July 700
Aug 600 (600+700+600) =
1900
Sept 500
Oct 400
Nov 600 (500+400+600) =
1500
-Follow the procedure in Excel Guide 6, starting with 4 lags, test to
see whether RGRT, UR and AWE are stationary. When carrying out
the tests, you also determine the optimal lag length for each of the
variables to be included in the final model.
(Note: With monthly data, you should test with 10 or 12 lags. With
quarterly data as in our case, 4 lags are sufficient)
-Model specification: What kind of model is appropriate? Static, DL,
AR, or ADL?
If your variables are stationary, the final model may be specified as
RGRT = T + Lags of RGRT + UR + Lags of UR + AWE + Lags of
AWE (Seasonal Dummies may also be included). If the variables are
non-stationary, you should use the following model:
RGRT = T + Lags of RGRT + UR + Lags of UR + AWE +
Lags of AWE (again, Seasonal Dummies may also be included).
Note: When running regression, make sure that the Time Index (T)
always starts with 1. For instance, if initially, you have data from Jan-
01 to Dec-01, Time Index for Jan-01 = 1. If later, you remove the
observations for Jan and Feb, Time Index for Mar-01 = 1.
Empirical Results:
-Run regression for your final model and produce the Table of
Results.
-Remove insignificant variables and re-run regression. Don’t panic if
many of the variables are insignificant. Simply remove them all.
-Utilising your regression model, forecast RGRT. It is sufficient to
forecast for the first quarter of 2014; you don’t have to forecast for the
whole year.
A sample: Suppose you have the following data:
Time Sales Income DSales
DSales
L1
DSales
L2
DSales
L3
Dincom
e
DIncome
L1
Jan-01 308.6 200
Feb-01 313.9 210 5.3
10
Mar-01 302.5 190 -11.4 5.3
-20 10
Apr-01 323 210 20.5 -11.4 5.3
20 -20
May-01 315.3 209 -7.7 20.5 -11.4 5.3 -1 20
Jun-01 320.4 212 5.1 -7.7 20.5 -11.4 3 -1
Jul-01 339.4 218 19 5.1 -7.7 20.5 6 3
Aug-01 362.7 220 23.3 19 5.1 -7.7 2 6
Sep-01 330.5 213 -32.2 23.3 19 5.1 -7 2
Oct-01 340.8 215 10.3 -32.2 23.3 19 2 -7
Nov-01 367.7 221 26.9 10.3 -32.2 23.3 6 2
Dec-01 380.2 225 12.5 26.9 10.3 -32.2 4 6
Jan-02 373.38 224 -6.82 12.5 26.9 10.3 -1 4
Feb-02 379.36 223 5.98 -6.82 12.5 26.9 -1 -1
Mar-02 367.52 220 -11.84 5.98 -6.82 12.5 -3 -1
Apr-02 388.02 230 20.5 -11.84 5.98 -6.82 10 -3
May-02
20.5 -11.84 5.98
10
20.5 -11.84
20.5
And, after running regression and removing insignificant variables,
the equation of relationship is: Sales = 3.21 – 0.33SalesL1
+1.65SalesL2 + 0.78SalesL3
For May-02, forecast Sales = 3.21 – 0.33*20.5 + 1.65*(-11.84) +
0.78*(5.98) = -18.42.
However, you are asked to forecast Sales, not Sales
Time Actual Sales Forecast
Sales
Forecast Sales
Apr-02 388.02
May-02 -18.42 388.02 – 18.42
= 369.6
Note: You don’t have to interpret coefficients as in Assignment 1. Just
forecast.
Conclusions and Limitations: Summarise your findings and discuss
the drawbacks of your report.
References: Harvard style.
Appendix: Include all necessary technical materials and data. The
appendix should be well sorted out and with brief descriptions so that
it is easy to follow.

FORECASTING AND BUSINESS ANALYSIS (ECON 2007)

• The main body of your report, including an executive summary of 100 words, should not
exceed 1100 words. The appendix of your report does not count for this limit.
• Your report should be supported by tables and/or graphs where appropriate.
• An electronic copy of your assignment is to be submitted online using the Learnonline
facility by the due date. No hard copy is required.
• There is a penalty of 10% of the total mark for late submission of each day. The only
exception to this is if your tutor approves an extension prior to the due date, for legitimate
reasons based on documented evidence. So you should collect your documented evidence
before you contact your tutor for an extension.
• Plagiarism is a specific form of academic misconduct. If found, both parties will be
penalised regardless of who copies from whom. The electronic version of your submitted
assignment will be used for a plagiarism check.
• The data file needed for this assignment is available on the course web site under the
Assignment Information folder, where this document is located.
Your Task
In December, 2014, an international retail company, Vincom, considered to expand its
business into the Australian market. They approached you, a renowned business consultant
for a feasibility study. They are interested in your forecast of Recreational Good Retail
Turnover (RGRT) in 2015 as a reference for their forecasted sale if they start their business
operation in Australia.
You are presented with the Australian Bureau of Statistics (ABS) information on Australia’s
RGRT from June 1994 through December 2014. The information on the unemployment rate
(UR) and the average weekly earnings (AWE) per person are also available to you.
Some Hints
1. As AWE is a quarterly series, while UR and RGRT are monthly, we need to make the
frequency of all the time series consistent.
2. Following the protocol shown on pages 162-164 of Koop, test for a unit root for each of
the variables.
3. Carry out econometric analysis and write down your findings before you start writing your
report.
4. A good report should be unfolded consistently and logically around a main theme which
covers your findings.
5. Create your business report, in which you will document and discuss the results of your
analysis. Your report should include the following items:
• An executive summary
• Introduction to the problem
• Justifications and discussions of methodologies
• Evaluation of results and discussions of limitations
• Conclusions
The following are some guidelines that we will use to mark your assignments. This may help
you in preparing your assignment.
Main article
Superb: Include all main results; accompanying well-presented and meaningful graphs and
tables; accurate, consistent and logical arguments; well-written.
Good, solid report: It is not superb in all aspects above, but an overall impression of the
report suggests that it is a very good and solid report.
Acceptable, but with several weaknesses: It clearly contains some mistakes, but overall it
covers most important findings.
Quite inadequate: The report contains many mistakes. An overall impression suggests that
assignments were done with little effort and students do not understand most of the concepts
introduced in the course.
Appendix
Include all necessary Excel outputs. Your appendix may include some technical materials.
The appendix should be well sorted out and with brief descriptions, so that they are easy to
follow.

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