8.8 Consider the total net generation of electricity (in billion kilowatt hours) by the U.S. electric industry

(monthly for the period 1985-1996). (Data set usmelec.)

In general there are two peaks per year: in mid-summer and mid-winter.

(a) Examine the 12-month moving average of this series to see what kind of trend is involved.

(b) Do the data need transforming? If so, find a suitable transformation.

(c) Are the data stationary? If not, find an appropriate differencing which yields stationary data.

(d) Identify a couple of ARIMA models that might be useful in describing the time series. Which of your models is the best according to their AIC values?

(e) Estimate the parameters of your best model and do diagnostic testing on the residuals. Do the residuals resemble white noise? If not, try to find another ARIMA model which fits better.

(f) Forecast the next 15 years of generation of electricity by the U.S. electric industry. Get the latest figures from http://data.is/zgRWCO to check on the accuracy of your forecasts.

(g) How many years of forecasts do you think are sufficiently accurate to be usable?