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ECON 475 B3: Economic Forecasting

College of Liberal Arts & Sciences

Department of Economics

Course Description

Overview of modern, quantitative, statistical and econometric methods for forecasting and evaluating forecasts. Topics include linear regressions; modeling and forecasting trends and seasonality; characterizing and forecasting cycles; MA, AR, and ARMA models; forecasting with regressions; evaluating and combining forecasts. Advanced topics including unit roots, stochastic trends, ARIMA models, and smoothing will be covered as time permits.

Credits: 3 hours (Undergraduate)/4 hours (Master)

Prerequisites: Students are assumed to have taken ECON202, ECON203 (Economic Statistics 1 and 2) or equivalent statistics and econometrics courses. Knowledge about basic calculus is also required.

Course Format

The instructor will give lectures on major concepts and issues and have classroom discussions when necessary. Students will be asked to do problem sets and produce forecasts using the tools taught in class.

Course Objectives

● Provide basic understanding off commonly used forecasting methods.

● To provide hands-on experiences of economic forecasting using real data.

Learning Resources

● Textbook: Diebold, Forecasting in Economics, Business, Finance and Beyond. Diebold, Elements of Forecasting. (2017 edition). Free access at http://www.ssc.upenn.edu/~fdiebold/Textbooks.html (book link under the forecasting session).

● Software: Eviews will be taught and used throughout the course to do forecasting of real and simulated data. Download the free version at https://www.eviews.com/EViews10/EViews10Univ/evuniv10.html. Eviews is easy to learn, practical to use and has every tool needed in the scope of this course. Students, for a number of reasons, may prefer to use another software. They are free to do so.

Student Assessment

● Homework Policies: There will be five homeworks, roughly one every two weeks except on exam dates and breaks. All homeworks are to be turned in at the beginning of the class in which they are due, unless stated otherwise by the instructor. Students must submit they answer through a .pdf document. Submissions will be done online via Compass 2g. Late submissions will not be accepted.

● Midterm and Final Exam Policies: There will be two midterm exams and one final exam. All exams are comprehensive but will feature more recent material predominantly. They will all be open book and require the usage of software. Students are allowed to consult the textbook, class notes, personal notes, statistical software and software documentation. They are not allowed to contact other students.

Exams will take place online. Students will join a zoom meeting, where an exam document will be provided. They will work on the problems and submit their answers in a form of a .pdf document via Compass 2g.

● Exam dates and times are not flexible. The only exception to this rule is a death in the family or illness requiring immediate attention from a physician. See Article 1 - Student Rights and Responsibilities (for more details on these issues at: https://studentcode.illinois.edu/article1/ ). The final exam conflict policy of the University will be enforced. The University’s final exam policy is available at: https://studentcode.illinois.edu/article3/part2/3-201/ .

Topics

● Part 1: Basics

1. Introduction: What are forecasts?

2. Review of Basic Concepts in Time Series.

3. Defining Forecasts.

4. Eviews Introduction Workshop.

5. Deterministic Trend and Seasonality Models.

● Part 2: Cycles, ARMA models.

1. The Business Cycle.

3. Moving Average (MA) Process.

2. Autoregressive Models (AR) Process.

4. Wold Decomposition.

5. Unit Roots.

● Part 3: Advanced Topics

1. Filtering and Smoothing

2. Stochastic Trends

3. Stochastic Volatility

4. Vector Autoregression

Tentative Class Schedule

Emergency Response Recommendations:

The university maintains guidelines for emergency responses. A list of recommendations when to evacuate and when to find shelter are available at: http://illinois.edu/cms/2251/general_emergency_response_recommendations_8_16_13_final.docx

Floor plans for specific buildings are available at: http://police.illinois.edu/emergencyplanning/floorplans/

Statement on Accommodations:

To obtain disability-related academic adjustments and/or auxiliary aids, students with disabilities must contact the course instructor and the Disability Resources Educational Services (DRES) as soon as possible. To contact DRES you may visit 1207 S. Oak Street, Champaign, call 333-4603 (V/TTY), or email a message to [email protected].

Academic Integrity:

“The University has the responsibility for maintaining academic integrity so as to protect the quality of education and research on our campus and to protect those who depend upon our integrity. Expectations of Students. It is the responsibility of each student to refrain from infractions of academic integrity, from conduct that may lead to suspicion of such infractions, and from conduct that aids others in such infractions. Students have been given notice of this Part by virtue of its publication. Regardless of whether a student has actually read this Part, a student is charged with knowledge of it. Ignorance is not a defense.”

The University’s full academic integrity policy is available at: https://studentcode.illinois.edu/article1/part4/1-401/