DSC2008 Business Analytics Data and Decisions

SEM 1, AY2016/2017

Tutorial 8
Question 1.
Unemployment rate is calculated as a percentage by dividing the number of
unemployed individuals by all individuals currently in the labor force. During
periods of recession, an economy usually experiences a relatively high
unemployment rate. According to International Labour Organization report,
"More than 197 million people globally are out of work or 6% of the world's
workforce were without a job in 2012.
The file T8_unemploy.xlsx lists the monthly unemployment rates of the USA
for several years.
a. Interpret the time series plot of the unemployment rates. Predict future
monthly unemployment rates using the values in the last four months. Is it
necessary to use these past values to forecast unemployment rates?
Justify your conclusion.
b. Are the time series of unemployment rates stationary? Why or why not?
c. Choose an autoregressive model to describe the dynamics of the
unemployment rates. Reason your selection and report the performance of
your fitted model. Is the model adequate?
d. If necessary, reformulate your model and justify it.
e. Predict the next month's unemployment rate using the model in part c or d.
What could be the future value with 95% chance?
Question 2.
Eighty-five percent of Internet users are also Internet shoppers, according to a
new survey, The Interactive Consumer: Charting the Online Shopping
Revolution, commissioned by Parade Magazine. The data from Forrester
Research also shows that Americans are moving from surfing the Web to
shopping online at a faster pace than ever before. In 1999, only 13 percent of
those online for less than six months had purchased online. Twenty-four
percent of this years inductees have bought something in the past three
months, said Patrick Callinan, analyst at the Cambridge, Massachusettsbased Forrester Research.
E-life, an online book store, recorded the number of new users in the past 5
years, from October 2008 till September 2013. Analyst XYZ studied the time
series data and argued that the AR(6) model is most appropriate to predict the
number of new users in the future. The SAS output (rounding to 3 decimal
places) is displayed below, where several information due to technical
problems is missing.
Name of Variable = New Users
Mean of Working Series
99.514
Standard Deviation
1.244
Number of Observations
60

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T8-1

DSC2008 Business Analytics Data and Decisions

SEM 1, AY2016/2017

Augmented Dickey-Fuller Unit Root Tests

Type
Lags
Rho
Pr <
Tau
Pr < Tau
Rho
Single Mean
0
-29.154
0.001 -4.300
0.001

Parameter
MU
AR1,1
AR1,2
AR1,3
AR1,4
AR1,5
AR1,6

To
Lag
6
12

Conditional Least Squares Estimation

Estimate
Standard
t Value
Approx
Error
Pr > |t|
99.217
0.524
189.309
0.000
0.230
0.136
1.682
0.098
0.191
0.140
1.368
0.177
0.247
0.141
1.760
0.084
0.168
0.141
1.195
0.237
0.108
0.142
0.763
0.449
-0.130
0.139
-0.935
0.354

Chi-Square

.
6.646

Obs
61
62

Lag
0
1
2
3
4
5
6

Autocorrelation Check of Residuals

DF Pr >
Autocorrelations
ChiSq
0
.
0.001 0.019 0.000 -0.013 -0.093 -0.099
6
0.356 -0.076 0.073 0.110 0.210 -0.056 -0.042
Forecasts for variable New Users
Forecast
Std Error
95% Confidence Limits
?
?
98.152
102.170
99.964
1.052
97.902
102.026

a) Is the new users data non-stationary? Explain why or why not?

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T8-2

DSC2008 Business Analytics Data and Decisions

SEM 1, AY2016/2017

b) Write down the fitted AR(6) model according to Analyst XYZ. Use Y t to
denote the number of new users at time t.
c) Is the AR(6) model adequate? Use the Ljung-Box Q(12) test statistic and
its significance to justify your conclusion.
d) Predict the number of new users in October 2013 (time = 61) according to
the SAS output. What is its standard error?
e) Explain why the standard error of forecast increases to 1.052 for
November 2013 (time = 62).
f) Point out the limitations of the analysis by Analyst XYZ. Which
autoregressive model would you suggest? Explain the reasons of
choosing your model.

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T8-3