Carolina Wood Products, Inc., a major manufacturer of household furniture, is interested in predicting expenditures on furniture (FURN) for the entire United States. It has the following data by quarter for 1998 through 2007:

a. Prepare a naive forecast for 2008Q1 based on the following model (see Chapter 1):

NFURNt = FURNt-1

PeriodNaive Forecast

2008Q1€¦€¦€¦€¦€¦€¦€¦€¦________

b. Estimate the bivariate linear trend model for the data where TIME = 1 for 1998Q1 through TIME = 40 for 2007Q4.

FURN = a + b (TIME)

FURN = ______ +/- ______ (TIME)

(Circle + or €“ as appropriate)

c. Write a paragraph in which you evaluate this model, with particular emphasis on its usefulness in forecasting.

d. Prepare a time-trend forecast of furniture and household equipment expenditures for 2008 based on the model in part (b).

e. Suppose that the actual values of FURN for 2008 were as shown in the following table. Calculate the RMSE for both of your forecasts and interpret the results. (For the naive forecast, there will be only one observation, for 2008Q1.)

PeriodActual FURN ($ Billions)

"Period              Actual FURN ($ Billions)
2008Q1………………………….177.6
2008Q2………………………….180.5
2008Q3………………………….182.8
2008Q4………………………….178.7
"

Transcribed Image Text:

FURN (in $ Billions) 2nd 3rd 4th 1st Quarter Quarter Year Quarter Quarter $ 96.8 $ 95.0 $ 98.1 $ 96.0 96.2 1998 98.4 1999 93.2 100.7 95.1 2000 104.4 108.1 111.1 2001 114.3 117.2 119.4 122.7 129.3 136.6 2002 125.9 132.2 2003 147.7 137.4 141.4 145.3 2004 148.8 150.2 153.4 154.2 2005 159.8 164.4 166.2 169.7 173.7 175.5 2006 175.0 175.7 2007 181.4 180.0 179.7 176.3