Answer to Question #258530 in Economics for Vinu

Question

Consider a time series of some economic variable (at least of 20 years) and estimate the trend using the following methods: Graphic Method Method of Semi Averages Method of Least Squares Method of Moving Averages (determine the period of MA also; if not possible take m = 4 ) Interpret your result for each of the method. Also plot the trend values obtained from Method of Least Squares and Method of Moving Averages against the original data and compare the results from the two methods. Also find the trend eliminated values of the variable.

Answer 1

The least-squares method (OLS) is one of the most

frequently used methods in the processing of empirical data, the construction, and analysis of physical, biological, technical, economic, and social models.

With the help of the LSM, the problem of choosing the parameters of the function

(of a predetermined form) for an approximate description of the dependence of the quantity yon the quantity x.

The initial data can be of very diverse nature and relate to various branches of science or technology, for example:

 dependence of the service life of electric lamps

(y) from the voltage applied to them (x);

 dependence of the breakdown voltage of capacitors (y) on

ambient temperature (x);

 dependence of the ultimate strength of steel (y) on the carbon content (x);

 dependence of indicators of unemployment (y) and inflation (x);

 dependence of the growth of crime (y),% and the growth of unemployment

(x),%

 dependence of the prices of goods (y) on-demand (x) for these goods;

 dependence of private consumption (y) on disposable income (x);

 dependence of the air temperature (y) on the height above the level

sea ​​(x) and other dependencies