The gross domestic product (GDP) of the United States from 1993 to 2003 is given

Question

The gross domestic product (GDP) of the United States from 1993 to 2003 is given in the table below. The numbers are in billions of U.S. dollars. Assume the forecast is $6,657 for 1993. Every student is invited to develop a forecast for the GDP of 2004 using any suitable forecasting tool (possibly with smoothing constants that she fix). Besides, the proposed forecast tool should be evaluated using MAD. Among all forecasting proposals, we will be able to discuss and choose the most suitable one. So, each student should edit the table by putting her name, introducing her method results and its evaluation using MAD in new columns below her name. Bad results do not jeopardize the quality of the work! Student info Name ID Forecast tool Name Parameters Year GDP ($Billions) 1993 6,657 1994 7,072 1995 7,398 1996 7,817 1997 8,304 1998 8,747 1999 9,268 2000 9,817 2001 10,128 2002 10,487 2003 11,004

Explanation / Answer

for the forecast the GDP for the year 2004, we use ARIMA Time series model. here we use the R-software

Fitting the ARIMA model in R , for that we use the Forecast package install first the use the following code

At first store the data in excel sheet in CSV formate and then read that excel file in R then after we fit the ARIMA model and forecast the GDP for 2004

> g<-c(6657,7072,7398,7817,8304,8747,9268,9817,10128,10487,11004)
> data<-ts(g) # store the data in time series formate
> Fit<-auto.arima(data) # fit the best ARIMA model
> Fit
Series: data
ARIMA(0,1,0) with drift       

Coefficients:
         drift
      434.7000
s.e.   26.5775

sigma^2 estimated as 7064: log likelihood=-52.18
AIC=108.36   AICc=110.07   BIC=108.96
> f<-forecast(Fit,h=1)
> f       # forecast the one future observation
   Point Forecast    Lo 80    Hi 80    Lo 95    Hi 95
12        11438.7 11330.99 11546.41 11273.97 11603.43

Hence we find the following result mention in the above table, and we forecast the GDP for the 2004 at 95 % confidence interval is 11438.7 ($Billions) . model is ARIMA(0,1,0) with drift and value of drift is 434.7.

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