Economic and Business Forecasting: Analyzing and Interpreting Econometric Results -- Copyright -- Contents -- Preface -- Acknowledgments -- Chapter 1: Creating Harmony Out of Noisy Data -- Effective Decision Making: Characterize the Data -- Part IA: Identifying Trend in a Time Series: GDP and Public Deficits -- Part IB: Identifying the Cycle for a Time Series -- Part IC: Identifying the Subcycles of Economic Behavior: Use of the HP Filter -- Part ID: Spotting Structural Breaks in a Time Series -- Part IE: Unit Root Tests -- Part IF: Modeling the Cycle -- Part IG: Cointegration and Error Correction Model -- Part IH: Causality-What Drives What? -- Part II: Measuring Volatility: ARCH/GARCH -- Part IIA: Forecasting with a Regression Model -- Part IIB: Forecasting Recession/Regime Switch as Either/or Outcomes -- Part IIC: Forecasting with Vector Autoregression -- Part IID: Forecast Evaluation -- Chapter 2: First, Understand the Data -- Growth: How is the Economy Doing Overall? -- Personal Consumption -- Gross Private Domestic Investment -- Government Purchases -- Net Exports of Goods and Services -- Real Final Sales and Gross Domestic Purchases -- The Labor Market: Always a Core Issue -- Establishment Survey -- Data Revision: A Special Consideration -- The Household Survey -- Marrying the Labor Market Indicators Together -- Jobless Claims -- Inflation -- Consumer Price Index: A Society's Inflation Benchmark -- Producer Price Index -- Personal Consumption Expenditure Deflator: The Inflation Benchmark for Monetary Policy -- Interest Rates: Price of Credit -- The Dollar and Exchange Rates: The United States in a Global Economy -- Corporate Profits -- Summary -- Chapter 3: Financial Ratios -- Profitability Ratios -- Return on Equity -- Return on Assets -- Corporate Profits as a Percentage of GDP -- Liquidity Ratios -- Leverage Ratios.

Investment Valuation Ratio -- Summary -- Chapter 4: Characterizing a Time Series -- Why Characterize a Time Series? -- How to Characterize a Time Series -- Putting Simple Statistical Measures to Work -- Identifying a Time Trend in a Series -- Identifying the Cycle in a Time Series -- Testing for a Unit Root -- Structural Change: A New Normal? -- Separating Cycle and Trend in a Time Series: The Hodrick-Prescott Filter -- Application: Judging Economic Volatility -- Look at the Data -- Putting Simple Statistical Measures to Work -- Corporate Profits -- Focus on the Labor Market Using Monthly Data -- Financial Market Volatility: Assessing Risk -- Summary -- Chapter 5: Characterizing a Relationship between Time Series -- Important Test Statistics in Identifying Statistically Significant Relationships -- Level of Significance and p-value -- The t-Value or t-Test -- The F-Test -- R2 and Adjusted R2 -- White Noise/Autocorrelation Detection Tests -- Model Selection Criteria: The AIC and SIC -- Simple Econometric Techniques to Determine a Statistical Relationship -- Correlation Analysis -- Regression Analysis -- Advanced Econometric Techniques to Determine a Statistical Relationship -- Cointegration Analysis -- The Error Correction Model -- The Granger Causality Test -- The ARCH/GARCH Model -- Summary -- Additional Reading -- Chapter 6: Characterizing a Time Series Using SAS Software -- Tips for SAS Users -- The Data Step -- The Proc Step -- Seasonal Adjustment in SAS -- Calculating the Mean, Standard Deviation, and Stability Ratio of a Variable -- Identifying a Time Trend in a Time Series -- Identifying Cyclical Behavior in a Time Series -- Summary -- Chapter 7: Testing for a Unit Root and Structural Break Using SAS Software -- Testing a Unit Root in a Time Series: A Case Study of the U.S. CPI -- Identifying a Structural Change in a Time Series.

Testing for a Structural Break: The Dummy Variable Approach -- Testing for a Structural Break: The Chow Test -- Testing for a Structural Break: The State-Space Approach -- The Application of the HP Filter -- Application: Benchmarking the Housing Bust, Bear Stearns, and Lehman Brothers -- 2006: The Housing Bust -- 2007: Bear Stearns and the Overnight Market for Risk -- 2008: Lehman and the Financial Crisis -- Summary -- Chapter 8: Characterizing a Relationship Using SAS -- Useful Tips for an Applied Time Series Analysis -- Converting a Dataset from One Frequency to Another -- The Correlation Analysis -- The Regression Analysis -- The Cointegration and ECM Analysis -- The Error Correction Model -- The Granger Causality Test -- The ARCH/GARCH Model -- Application: Did the Great Recession Alter Credit Benchmarks? -- Delinquency Rates: Identifying Change Post-Great Recession -- Patterns in Charge-off Rates: Identifying Differences in the Character of Trends -- Breakdown of the Monetary Policy Transmission Mechanism -- Summary -- Chapter 9: The 10 Commandments of Applied Time Series Forecasting for Business and Economics -- Commandment 1: Know What You Are Forecasting -- Commandment 2: Understand the Purpose of Forecasting -- Commandment 3: Acknowledge the Cost of the Forecast Error -- Symmetric versus Asymmetric Loss Function -- Linear versus Nonlinear Loss Function -- Commandment 4: Rationalize the Forecast Horizon -- Short-Term Forecasting -- Long-Term Forecasting -- Commandment 5: Understand the Choice of Variables -- Commandment 6: Rationalize the Forecasting Model Used -- Commandment 7: Know How to Present the Results -- Commandment 8: Know How to Decipher the Forecast Results -- Commandment 9: Understand the Importance of Recursive Methods -- Commandment 10: Understand Forecasting Models Evolve Over Time -- Summary.

Chapter 10: A Single-Equation Approach to Model-Based Forecasting -- The Unconditional (Atheoretical) Approach -- The Box-Jenkins Forecasting Methodology -- Application of the Box-Jenkins Methodology -- The Conditional (Theoretical) Approach -- A Case Study of the Taylor Rule -- What About Strong Growth? -- Recession Forecast Using a Probit Model -- Application of the Probit Model -- Summary -- Chapter 11: A Multiple-Equations Approach to Model-Based Forecasting -- The Importance of the Real-Time Short-Term Forecasting -- The Individual Forecast versus Consensus Forecast: Is There an Advantage? -- The Econometrics of Real-Time Short-Term Forecasting: The BVAR Approach -- The Bayesian Vector Autoregression Model -- Forecast Evaluation: Real-Time Measures -- A SAS Application of the BVAR Approach: A Case Study of the Employment Forecast -- Forecasting in Real Time: Issues Related to the Data and the Model Selection -- The Functional Form of the Variables -- The Selection of the Best Model Specification -- Timing of the Release: A Dependent Variable and Predictors -- Case Study: WFC versus Bloomberg -- Summary -- Appendix 11A: List of Variables -- Chapter 12: A Multiple-Equations Approach to Long-Term Forecasting -- The Unconditional Long-Term Forecasting: The BVAR Model -- The BVAR Model with Housing Starts -- The Model without Oil Price Shock -- A Small-Scale Macro Model: Equation 12.1 -- The Model with Oil Price Shock -- Summary -- Chapter 13: The Risks of Model-Based Forecasting: Modeling, Assessing, and Remodeling -- Risks to Short-Term Forecasting: There is No Magic Bullet -- Risks of Long-Term Forecasting: Black Swan versus a Group of Black Swans -- Model-Based Forecasting and the Great Recession/Financial Crisis: Worst-Case Scenario versus Panic -- Summary -- Chapter 14: Putting the Analysis to Work in the Twenty-First-Century Economy.

Benchmarking Economic Growth -- Benchmarks: Economic Growth and the Labor Market -- Testing, Not Assuming, Economic Values for Good Decision Making -- Our Benchmark for Real GDP Growth: 2.75 Percent -- Industrial Production: Another Case of Stationary Behavior -- Employment: Jobs in the Twenty-first Century -- Unemployment Rate Measured by U-3: A Surprising Result of Stationarity -- Employment Growth: Surprisingly Stationary Despite Impressions -- The Beveridge Curve: Yet to Shift Inward -- Structural Change in the U.S. Labor Market: Two Illustrations -- Inflation -- Inflation and Inflation Expectations -- Inflation: A (Small) Bias to the Upside -- Interest Rates -- Inflation and Real Yields: A Signal of Financial Imbalances -- Imbalances between Bond Yields and Equity Earnings -- Healthy Bond Issuance Consistent with Functioning Credit Market Expansion -- Two-Year Treasury Yield: Benchmark for the Short End of Yield Curve -- Adjusting the Two-Year Treasury Yield to Achieve Stationarity -- 10-Year Treasury Yields: Not Mean Reverting -- A Note of Caution on Patterns of Interest Rates -- Business Credit: Patterns Reminiscent of Cyclical Recovery -- Profits -- Corporate Profits: Surprising Stability -- Financial Market Volatility: Assessing Risk -- Dollar -- Dollar Exchange Rate: A Strong Dollar Is Not the Real Story -- Volatility in the Dollar over Time -- Economic Policy: Impact of Fiscal Policy and the Evolution of the U.S. Economy -- Large and Persistent Deficits: A Brave New World of Fiscal Policy -- Budget Limits with 2.75 Percent Trend Economic Growth -- The Long-Term Deficit Bias and Its Economic Implications -- Interest Rates Trend Reversal: Test to Come Ahead -- Credit Imbalance: The U.S. Treasury Market -- Summary -- Appendix: Useful References for SAS Users -- About the Authors -- Index.