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Years

1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Production
175912 194547 195051 193333 194788 228712 267145 288964 340681 421805 493165 569162 614383 580202 559290 607250 555645 559800 554977 630802 649416 704225 740051 737302 783981 823773 941820

Export
22955 27596 27982 28587 39704 58599 98312 80806 123984 184999 213614 228765 279802 275257 241678 266133 259847 240595 221910 256927 277830 292163 243678 247230 263373 284946 278610

Entering Data in Eview


Write new Enter: or Click on File new workfile

To create a new series write series data Press Enter (data means data name)

Double click on data, the new window will open. Now click on Edit +/- button, as shown below. Now you can enter the data directly or can copy from MS Excel.

After entering data you have to check the trend the series,

Which is shown below

Stationarity
Most of the time series data have trend (which means that the mean and variance of the series changes over time), and are termed non-stationary. Starting is to find the stationarity in the data with the help of run sequence plot and its graph is shown as run sequence plot for production

90 80 Production (0000) 70 60 50 40 30 20 Index 1984 1989 1994 1999 2004

The initial run sequence plot of the original data indicates a rising trend. The above table reports the result of testing all the series for unit root (in the original form) using Augmented Dickey-Fuller (ADF) test.

Next is to check the unit root test,

Unit root results t-Statistic Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level 0.598768 -3.711457 -2.981038 -2.629906 Prob.* 0.9869

The table shows that the series is non-stationary. A visual inspection of the run sequence plot indicates that a first difference should be sufficient to remove this upward trend. The table given below reports the results of testing all the series for unit root ( in the first difference form) using Augmented Dickey-Fuller (ADF) test

Unit root results

t-Statistic Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level -3.120228 -3.724070 -2.986225 -2.632604

Prob.* 0.0379

The above table shows that the series is still non-stationary in the first difference form. The table reports the results of testing all the series for unit root ( in the second difference form) using Augmented Dickey-Fuller (ADF) test Unit root results

t-Statistic Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level -7.267332 -3.737853 -2.991878 -2.635542

Prob.* 0.0000

Above table reports that the series is stationary (in second difference form).

Identification
The tool to find out the appropriate values of p and q used, Autocorrelation function and Partial Autocorrelation function. Model Identification for production

All the work you have done is on the DATA Workfile

Correlogram of production series (in 2nd difference form)

It helps you to identify the appropriate model. In the above figure, The autocorrelation plot of the 2nd differenced data with a 95% confidence band shows that the spike at 1 lag is significant in ACF plot and lag 1 is significant in PACF. However we will use the AIC to choose the good Model, so we will consider the model as a final model for estimating which gives the minimum AIC. Model Selection with the help of minimum Akaike information. Model d(prod,2) c ar(1) ma(1) d(prod,2) c ma(1) AIC 24.22 24.16

The Model selected with the help of minimum akaike information is, ARIMA(0, 2, 1). Now to write a model, go to Quick Estimate Equation , the new window will open

The new window that appear is given below and the appropriate model is written as

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The results will be given below

Estimation
Estimation of the parameter for production Model Let y * t denote the 2nd differences of the production. Then our tentatively identified model is y * t = + 1 t 1 + t
* *

Eq-1

Regression results Variable C MA(1) Coefficient Std. Error t-Statistic 2590.569 -0.611 3529.077 0.734 0.182 -3.349 Prob. 0.4703 0.0028 Akaike = 24.16 Parsimonious selection of

ARIMA with our specified model resulted in the inclusion of Moving Average in first order. The estimated results of Equation (1) along with t-statistics are reported in Table

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Here coefficient of the series called constant = 2590.57 means that the base level of the prediction is 2590.57 when all of the other independent variables are zero. And the coefficient of MA(1) = -0.61 means that the contribution of t 1 t 3 to the prediction of y t y t 2 is -0.61. For prediction of y t we must rearrange the model, i.e. yt = 2590 .6 0.61 t 1 + 0.61 t 3 + yt 2 + t t 2 The last column of the Table indicates that the effect of MA(1) is highly significant.

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Diagnostic
Now go to View ARMA Structure , the window will open

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The new window is

Clicking on Ok you can get your required graph, i.e. given below, Model Validation For ARIMA (p,d,q) Production Model ( p = 0 and q =1) ARMA Structure

Inverse Roots of AR/MA Polynomial(s) 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -1.5
Because no root lies outside the unit circle, therefore the ARMA (1, 0) model is stationary. Now to check the stationarity in error term, plz do the procedure given below

-1.0

-0.5

0.0

0.5

1.0

1.5

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MA roots

And the results are shown below Stationarity in error term

The table given below Reports the results of testing Residual series for unit root using Augmented Dickey-Fuller (ADF) test. Similarly we can check the unit root test Unit Root Results

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t-Statistic Augmented Dickey-Fuller test statistic Test critical values: 1% level 5% level 10% level -4.129668 -3.737853 -2.991878 -2.635542

Prob.* 0.0041

The results in Table indicate that we reject null hypothesis of unit root presence in the Residual series. So the Residual series is stationary. On the base of the results of Table and Fig , we can say that the ARIMA (0, 2, 1) production Model is a reasonable fit to the data.

Forecasting
Now go to the Forecast tab and get your required results

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To gauge the forecasting power of the production model we rerun the same specification on the data from 1980 to 2001, and estimate the forecast values for the last five years (2002 to 2006). The forecast performance statistics are reported in Fig Our model tracks the actual values quite impressively as evident from various forecasting performance statistics. More specifically, a very small value of Theils Inequality Coefficient (0.02) indicates good forecasting. Stepping back, the marginal forecast errors could be traced by looking at the last three proportion statistics. In total forecast error, Bias proportion is 26 percent, suggesting that the difference between means of forecast and actual values is high but variance proportion is on lower side, indicating just 15 percent variation in actual and forecast variances. Covariance proportion is 58 percent, suggests that the unsystematic error is low. Forecast Performance

1400000 1200000 1000000 800000 600000 400000 2001

Forecast: PRODF Actual: PROD Forecast sample: 2001 2006 Included observations: 6 Root Mean Squared Error Mean Absolute Error Mean Abs. Percent Error Theil Inequality Coefficient Bias Proportion Variance Proportion Covariance Proportion 32457.75 23462.83 2.847646 0.020713 0.264879 0.152015 0.583105

2002

2003

2004 PRODF

2005

2006

We also used this model to forecast production series for (2007 to 2010). The forecast values for the years are shown in Table

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1600000 1500000 1400000 1300000 1200000 1100000 1000000 900000 2007

2008 PRODF

2009

2010

Forecast Values years 2007 2008 2009 2010 Forecasting 1015357 1091485 1170203 1251512

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