Statistical methode 3

(c)  Box – Jenkins Method: - This method of
forecasting is used only for short – term
predictions. Besides, this method is suitable for
forecasting demand with only stationary time series
sales data. Stationary time series data is one, which
does not reveal long term trend. In other words,
Box-Jenkins technique can be used only on those
cases in which time-series analysis depicts monthly
or seasonal variation recurring with some degree of
regularity.
Barometric Method Many economists use economic
indicators as barometer to forecast trends in
business activities. The basic approach of barometer
technique is to construct an index of relevant
economic indicators and to forecast future trends on
the basis of movements in the index of economic
indicators. The indicators used in this method are
classified as
(a) Leading indicators: - consists of
indicators which move up and down ahead of some
other series e.g. new order of durable goods, new
building permits etc.
(b) Coincidental indicators: - are the ones
that move up and down simultaneously with the level
of economic activity. E.g. number of employees in
the non-agricultural sector, rate of unemployment,
sales recorded by the manufacturing, trading and
the retail sectors etc.
(c) Lagging indicators consists of those
indicators, which follow a change after some time
lag. E.g. lending rate for short-term loans etc.
Development and allotment of land by Delhi
Development Authority to Group Housing Societies (a
lead indicator) indicates higher demand prospects
for cement, steel and other construction material
(coincidental indicators) and increase in housing loan
distribution (lagging indicators).
Econometric method
The econometric methods combine statistical tools
with economic theories to estimate economic variables
and to forecast the intended economic variables. An
econometric model may be single equation regression
model or it may consist of a system of simultaneous
equations.
Regression method
Regression analysis is the most popular method of
demand estimation. This method combines economic
theory and statistical techniques of estimation.
Economic theory is employed to specify the
determinants of demand and to determine the
nature of the relationship between the demand for
a product and its determinants. Economics theory
thus helps in determining the general form of
demand function. Statistical techniques are
employed to estimate the values of parameters in
the estimation equation.
Simultaneous Equation Method
It involves estimating several behavioral equations.
These equations are generally behavioral equations,
Mathematical equations and Market – clearing
equations. The first step in this technician is to
develop a complete model and specify the behavioral
assumption regarding the variables included in the
model. The variables that are included in the model
are
1) Endogenous variables
2) Exogenous variables
Endogenous variables – the variables that are
determined within the model are called endogenous
variables. Endogenous variables are included in the
model as depended variables that are the variables
that are to be explained by the model. These are
also called controlled variables. The number of
equations included in the model must be equal to
number of endogenous variables.
Exogenous variables – are those that are determined
outside the model. Exogenous variables are inputs of
the model whether a variable is treated endogenous
variables or exogenous variables depend on the
purpose of the model. The examples of exogenous
variables are “ Money Supply”, tax rates, govt.
spending etc. The exogenous variables are also known
as uncontrolled variables.