Problem 1 (25 Points) Everybody is talking about inflation right now. The most popular indicator for inflation
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Problem 1 (25 Points)
Everybody is talking about inflation right now. The most popular indicator for inflation is the CPI and reported by the U.S. Bureau of Labor Statistics. Worksheet "CPI" in "Assignment 5.xlsx" contains monthly values of the Consumer Price Index between January 2019 and June 2022 (in column D).
- Using moving averages over 5 months, what CPI value would you predict for July 2022?
- Using an exponential smoothing model with a smoothing constant of 0.2, what CPI value would you predict for July 2022? Why is this answer different from the one in part a)?
- Using an exponential smoothing model with a smoothing constant of 0.8, what CPI value would you predict for July 2012? Why is this answer different from the one in part b)?
- Make a scatterplot of the monthly CPI between January 2019 and June 2022. What does this scatterplot tell you? Should you have used the forecasting techniques in parts a) - c) in this case? Why? Why not?
- Develop a simple linear regression model with the 42 months ("Period") as the independent and the corresponding CPI values as the dependent variable. How well does your model fit the data? Do you think this is a better model than the ones used in parts a) - c)? Why? Why not?
- Using your regression model from part e), predict the CPI value in December 2022. Could you have made such a prediction based on the models from parts a) - c)? Why? Why not?
Data for question 1
| Year | Month | Period | CPI-U |
| 2019 | Jan | 1 | 251.712 |
| 2019 | Feb | 2 | 252.776 |
| 2019 | Mar | 3 | 254.202 |
| 2019 | Apr | 4 | 255.548 |
| 2019 | May | 5 | 256.092 |
| 2019 | Jun | 6 | 256.143 |
| 2019 | Jul | 7 | 256.571 |
| 2019 | Aug | 8 | 256.558 |
| 2019 | Sep | 9 | 256.759 |
| 2019 | Oct | 10 | 257.346 |
| 2019 | Nov | 11 | 257.208 |
| 2019 | Dec | 12 | 256.974 |
| 2020 | Jan | 13 | 257.971 |
| 2020 | Feb | 14 | 258.678 |
| 2020 | Mar | 15 | 258.115 |
| 2020 | Apr | 16 | 256.389 |
| 2020 | May | 17 | 256.394 |
| 2020 | Jun | 18 | 257.797 |
| 2020 | Jul | 19 | 259.101 |
| 2020 | Aug | 20 | 259.918 |
| 2020 | Sep | 21 | 260.280 |
| 2020 | Oct | 22 | 260.388 |
| 2020 | Nov | 23 | 260.229 |
| 2020 | Dec | 24 | 260.474 |
| 2021 | Jan | 25 | 261.582 |
| 2021 | Feb | 26 | 263.014 |
| 2021 | Mar | 27 | 264.877 |
| 2021 | Apr | 28 | 267.054 |
| 2021 | May | 29 | 269.195 |
| 2021 | Jun | 30 | 271.696 |
| 2021 | Jul | 31 | 273.003 |
| 2021 | Aug | 32 | 273.567 |
| 2021 | Sep | 33 | 274.310 |
| 2021 | Oct | 34 | 276.589 |
| 2021 | Nov | 35 | 277.948 |
| 2021 | Dec | 36 | 278.802 |
| 2022 | Jan | 37 | 281.148 |
| 2022 | Feb | 38 | 283.716 |
| 2022 | Mar | 39 | 287.504 |
| 2022 | Apr | 40 | 289.109 |
| 2022 | May | 41 | 292.296 |
| 2022 | Jun | 42 | 296.311 |
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