1.Time Series analysis 2.

Econometric Method

3.Barometric Method
4. Input- Output Analysis (End-use Method)

1.Time Series analysis a. Trend Analysis i. Graphical Method ii. Least square Method

2. Econometric Method a. Regression Method i. Simple Regression Analysis ii. Multiple regression Analysis
3. Barometric Method a. Leading indicators b. Coincident Indicators c. Lagging indiactors. 4. Input Output Method.

 TIME SERIES ANALYSIS

Changes or movements in a variable overtime

constitute a time series. As far as demand forecasting is concerned, the variable in question will be the demand of the product overtime.
a.Trend projection.
This is a classical method of business forecasting. This method is essentially concerned with the study of

movement of variables through time. The use of this method requires a long and reliable time-series data.

 Trend projection.

The trend projection method is used under the

assumption that the factors responsible for the past trends in the variable to be projected(eg.sales and demand) will continue to play their part in future in the same manner and to the same extent as they did in

the past in determining the magnitude and direction

of the variable.
In projecting demand for a product, the trend method

is applied to time-series data on sales

 There are two techniques of trend projection based on

time-series.
A).Graphical Method- this is also called free hand

method.Under this method, annual sales data is plotted on a graph paper and a line/curve is drawn through the

plotted points. The curve is then projected into the

future to forecast demand.
Although, this method is very simple and least

expensive, the projections made are not reliable .

 Least square method- generally statisticians use this

method for forecasting demand.Fitting trend equation is a formal technique of projecting the trend in demand.
Under this method, a trend line (or curve) is fitted to the

time series sales data with the aid of statistical techniques.

The form of the trend equation that can be fitted to the

time series data is determined either by plotting the sales data or by trying different forms of trend equations for the best fit.
Most common types of trend equations- linear and

exponential trends.

 ECONOMETRIC METHOD-

This method involves the combination of economic

theory, mathematical model and statistical tools. The

forecasts made through this method are more reliable

than those made through any other method.
Econometric methods are described under

REGRESSION METHOD.
It may be a simple-equation regression model or it may

consist of simultaneous equations.

REGRESSION METHOD
This is the most popular method of demand estimation. it

combines economic theory and statistical techniques.

The regression method involves a study of the dependence

of one variable on the other variable.In demand forecasting, demand is estimated with the help of a regression equation wherein demand is the dependent variable and variables that affect or determine demand eg.price,advertising expenditure, consumers income etc. are called the independent variable.

 Simple regression analysis- when only one

independent variable eg. Price and one dependent variable eg. Demand is considered, we have a simple regression analysis.
Multiple regression analysis- when two or more

independent variables eg. Price, advertising

expenditure and only one dependent variable say, demand are taken into account, we have a multiple regression analysis.

 BAROMETRIC METHOD OF FORECASTING-

This method follows the method meteorologists use in

weather forecasting. meteorologists use the barometer

to forecast conditions on the basis of movements of

mercury in the barometer.
Following the logic of this method, many economists

use economic indicators as a barometer to forecast trends in business activity.

 This method has been refined and developed further

in 1930s by the National Bureau of Economic Research (NBER) of USA and since then adopted by US. for

forecasting purposes.
The basic approach of barometric technique is to

construct an index of relevant economic indicators.

The indicators used in this method are classified as-. a.Leading indicators
b. Coincidental indicators c. Lagging indicators.

 A Leading indicator- signal in advance a change in the

basic performance of the economy as a whole.leading series consists of indicators which move up or down

ahead of some other series.

some examples are : i. index of net business (capital) formation

ii. New orders for durable goods

iii. New building permits iv. Change in the value of inventories

v. index of the prices of materials

vi. Corporate profit after tax.

 b. Coincident indicators- are those whose movements

coincide roughly with and provide a measure of the current performance of aggregate economy.
They move up and down simultaneously with the level of

economic activity.
Some examples are i.GNP at constant prices. ii. Sales recorded by the manufacturing, trading and retail

sectors.
iii.rate of unemployment

 c. Lagging indicators are those indicators which

usually follow rather than lead coincident indicators.

The lagging series, consists of those indicators which

follow a change after some time lag.
Some of the indices identified by NBER are

i. outstanding loans ii. Lending rate for short- term loans.

 4. INPUT OUTPUT ANALYSIS (End- Use Method)

One of the most sophisticated and promising forecasting

method developed in recent decades is Leontiefs input output model of the economy.
This model enables a forecaster to trace the effects of an

increase in demand for one product through other industries.

Eg. An increase in demand for automobiles will first lead to

an increase in the output of the auto industry. This, in turn

will lead to an increase in demand for steel, glass, plastics, tyres, fabric and so on.

 In this method (also known as end-use method), the

demand for a product is forecast on the basis of a study of its quantity demanded by other industries

(who use it as an input or an intermediate product)

and the quantity demanded by the final demand sectors ( household sector, government sector and foreign sector).