1. Foundations for Forecasting Basic Concepts

2. Basic Part of a Forecast Level Growth Uncertainty

3. Additive Model

4. Multiplicative Model

5. Forecasting Example: Gross Domestic Product Value of final goods and services produced in an economy during a specified period of time Measures the size of the economy and facilitates comparisonscomparisons Components Consumption Investment Government purchases Net exports (exports – imports)

6. Real Gross Domestic Product (GDPC1) Possibilities at Federal Reserve Economic Data web site (FRED)FRED Nominal versus real Seasonally adjusted versus not seasonally adjusted Frequency of data Data Manipulation Linear level or no manipulation Change Rate of Change

7. Forecasts for GDP Last observation Third quarter of 2014 $16,205.6 billion Estimate of billion dollar increase/decrease $100 billion Forecast: $16,205.6 + $100 = $16,305.6 Estimate of percentage change 0.6% Forecast: $16,205.6 x (1 + 0.006) = $16,302.83

8. Vertical Axis Linear level in original units Change from previous period Change from a year ago Percentage change Percentage change from a year ago Compounded annual percentage change Continuously compounded percentage change Continuously compounded annual percentage change Index

9. Change Current observation minus previous observation

10. Change from Previous Year Current observation minus observation from a year ago

11. Percentage Change Change from previous period divided by previous observation

12. Percentage Change from Year Ago Change from year ago divided by observation from a year ago

13. Compounded Annual Change Ratio of consecutive observations raised to the power of the number of observations per year.

14. Continuously Compounded Rate of Change Natural logarithm of the ratio of consecutive observations

15. Continuously Compounded Annual Rate of Change Natural logarithm of the ratio of consecutive observations multiplied by the number of observations per year

16. Alternative Forms Multiplicative: Additive: