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Lecture 22

Day 24

Autoregressive Modeling
DCOVA
 Used for forecasting
 1st order - correlation between consecutive values
 2nd order - correlation between values 2 periods
apart
 pth order Autoregressive model:
Yi  A 0  A1Yi-1  A 2 Yi-2    A p Yi-p  δi

Random
Error
Autoregressive Model:
Example DCOVA
The Office Concept Corp. has acquired a number of office
units (in thousands of square feet) over the last eight years.
Develop the second order Autoregressive model.

Year Units
02 4
03 3
04 2
05 3
06 2
07 2
08 4
09 6

Autoregressive Model:
Example Solution DCOVA

 Develop the 2nd order Year Yi Yi-1 Yi-2

table 02 4 -- --
03 3 4 --
 Use Excel to estimate a 04 2 3 4
regression model 05 3 2 3
Excel Output 06 2 3 2
Coefficients 07 2 2 3
I n te rc e p t 3.5 08 4 2 2
X V a ri a b l e 1 0.8125 09 6 4 2
X V a ri a b l e 2 -0 . 9 3 7 5

Ŷi  3.5  0.8125Yi1  0.9375Yi2

Autoregressive Model
Example: Forecasting
DCOVA

Use the second-order equation to forecast

number of units for 2010:

Ŷi  3.5  0.8125Yi 1  0.9375Yi  2

Ŷ2010  3.5  0.8125(Y2009 )  0.9375(Y2008 )
 3.5  0.8125(6)  0.9375(4)
 4.625