Diebold

Elements of Forecasting

in Business, Finance, Economics and Government Francis X. Diebold

Department of Economics University of Pennsylvania

“Solutions Manual”

Copyright © F.X. Diebold. All rights reserved.

-2-

Preface

This is quite a nonstandard “Solutions Manual,” but I use the term for lack of something more descriptively accurate. Many of the Problems and Complements don't ask questions, so they certainly don't have solutions; instead, they simply introduce concepts and ideas that, for one reason or another, didn't make it into the main text. Moreover, even for those Problems and Complements that do ask questions, the vast majority don't have explicit or unique solutions. Hence the “solutions manual” offers remarks, suggestions, hints, and occasionally, solutions. Most of the Problems and Complements are followed by brief remarks marked with asterisks, and in the (relatively rare) cases where there was nothing to say, I said nothing.

F.X.D.

-3-

Solutions

-4Chapter 1 Problems and Complements

1. (Forecasting in daily life: we are all forecasting, all the time) a. Sketch in detail three forecasts that you make routinely, and probably informally, in your daily life. What makes you believe that the forecast object is predictable? What factors might introduce error into your forecasts? b. What decisions are aided by your three forecasts? How might the degree of predictability of the forecast object affect your decisions? c. How might you measure the "goodness" of your three forecasts? d. For each of your forecasts, what is the value to you of a "good" as opposed to a "bad" forecast? * Remarks, suggestions, hints, solutions: The idea behind all of these questions is to help the students realize that forecasts are of value only in so far as they help with decisions, so that forecasts and decisions are inextricably linked. 2. (Forecasting in business, finance, economics, and government) What sorts of forecasts would be useful in the...