Hi guys. I am following both bionic turtle and GARP materials and have a question about the second one. in chapter 10, question 10.18 the task is to forecast RGDPG with AR(2) model using formula yt = 1.765 + 0.319* y(t-1)+0.114*y(t-2). Fairly straightforward, but i do not understand where the got the number 2.564 from and why 2.793 is used for for t-2 period. I saw a fair amount of typos in the materials, so suspect it is in that direction, but would appreciate any help if it is not. Thank you!
P1.T2. - Chapter 10. GARP Material practice questions.
- Thread starter MilaBank
- Start date
Hello @MilaBank
Can you please copy/paste (not an image) the question and answer that you are referring to so everyone in the forum knows what you are referencing? Thank you.
ah, of course, was not entirely sure if that is allowed per copyright or smth
The 2018Q4 value of real GDP growth is RGDPGT-1 = 2.793. What are the forecasts for 2019Q1 – 2019Q4 using the AR(2) model in Table 10.1?
(May, 10/2019, p. 194)
Solution:
All forecasts are recursively computed starting with the first:
1.765 + 0.319 * 2.564 + 0.114 * 2.793 = 2.90. (May, 10/2019, p. 197)
May, B. (2019). 2020 Financial Risk Management Part I: Quantitative Analysis, 10th Edition. [[VitalSource Bookshelf version]]. Retrieved from vbk://9780136594659
Model specifications per that table are yt = 1.765 + 0.319* y(t-1)+0.114*y(t-2).
The 2018Q4 value of real GDP growth is RGDPGT-1 = 2.793. What are the forecasts for 2019Q1 – 2019Q4 using the AR(2) model in Table 10.1?
(May, 10/2019, p. 194)
Solution:
All forecasts are recursively computed starting with the first:
1.765 + 0.319 * 2.564 + 0.114 * 2.793 = 2.90. (May, 10/2019, p. 197)
May, B. (2019). 2020 Financial Risk Management Part I: Quantitative Analysis, 10th Edition. [[VitalSource Bookshelf version]]. Retrieved from vbk://9780136594659
Model specifications per that table are yt = 1.765 + 0.319* y(t-1)+0.114*y(t-2).
Hi @MilaBank There are typos in almost every exercise that I've recreated in the TS chapter, and there is one here but it's minor. The 2.564 comes from page 180:
So GARP's 10.18 reads "The 2018Q4 value of real GDP growth is RGDPG(T-1) = 2.793" but I think it just should read "The 2018Q3 value of real GDP growth was RGDPG(2018Q3) = 2.793" ... unless it's some too clever (?) way of trying to say that 2.793 is Q3 because it is (t-1) from the perspective of Q4, but there's no reason to so that so i think it's just another typo
But then the solution works for me:
2018Q3: RGDPG = 2.793
2018Q4: RGDPG = 2.564
2019Q1 = 1.765 + 0.319*2.564 + 0.114*2.793 = 2.9013,
2019Q2 = 1.765 + 0.319*2.9013+ 0.114*2.564 = 2.9828, ...
hope that helps!
So GARP's 10.18 reads "The 2018Q4 value of real GDP growth is RGDPG(T-1) = 2.793" but I think it just should read "The 2018Q3 value of real GDP growth was RGDPG(2018Q3) = 2.793" ... unless it's some too clever (?) way of trying to say that 2.793 is Q3 because it is (t-1) from the perspective of Q4, but there's no reason to so that so i think it's just another typo
But then the solution works for me:
2018Q3: RGDPG = 2.793
2018Q4: RGDPG = 2.564
2019Q1 = 1.765 + 0.319*2.564 + 0.114*2.793 = 2.9013,
2019Q2 = 1.765 + 0.319*2.9013+ 0.114*2.564 = 2.9828, ...
hope that helps!
That helps a lot, cannot believe how much time i spent trying to figure out what i am doing wrong. Thank you!
