Coffee prices 2017. Coffee is the world’s second largest legal export commodity (after oil) and is the second largest source of foreign exchange for developing nations.

The United States consumes about one-fifth of the world’s coffee. The International Coffee Organization (ICO) computes a coffee price index using Colombian, Brazilian, and a mixture of other coffee data. Data are provided for the monthly average ICO price index (in $US) from January 1990 to December 2017.

Here’s an autoregressive model for the composite prices.
Response variable is: ICO Composite indicator R squared = 96.4% R squared (adjusted) = 96.4%
s = 7.980 with 334 - 4 = 330 degrees of freedom Variable Coefficient SE(Coeff) t-ratio P-value Intercept 2.33255 1.202 1.94 0.0531 t 0.00533 0.0052 1.02 0.3098 Lag1 1.18576 0.0538 22.1 60.0001 Lag2 -0.215672 0.0538 -4.01 60.0001

a) Here are the last several values of the series: 128.24, 124.46, 120.01, 117.26, and 114.00. What price does this model predict for the next value in the series 1t = 3372?

b) Find a prediction based on a 2-point moving average.