A person X, has estimated the following log-linear trend model: LN(xt) = b0 + b(1)t + ε(t). Using six years of quarterly observations, 2001:I to 2006:IV, X gets the following estimated equation: LN(xt) = 1.4 + 0.02t. The first out-of-sample forecast of x(t) for 2007:I is closest to: A) 1.88. B) 4.14. C) 6.69. My answer does not match any of the choices, so please explain while u post ur answer
e^1.9 = 6.68589444 = C?
swap is correct the answer is in fact C.
Sidharth - I did’nt see you were asking for explaination. sry. Basically log(x) = 1.4 + 0.02*t 2001:I to 2006:IV ===> 6*4 = 24 time periods Next forecast will be for 25th time period. therefore t=25 log(x) = 1.4 + 0.02*25 = 1.4 +0.5 = 1.9 log(x) = 1.9 Taking Antilog x = e^(1.9) x = 6.68589444 = C
Thanks a lot for the explanation. I was not taking quarters into account and hence coming up with the wrong answer.