You are to work on the problem sets individually. For this problem set, please find an excel data set on the course website (pset3DATA.xls), which contains monthly data for an unnamed variable from...

ECON 4325-001 Assignment 3 October 23, 2012 The due date for this assignment is Tuesday, November 1, 2012. Reading assignment: Chapters 7-8 Instructions: The assignment is due at the beginning of class on November 1, 2012. Please note that late assignments will not be accepted. You are to work on the problem sets individually. For this problem set, please find an excel data set on the course website (pset3DATA.xls), which contains monthly data for an unnamed variable from January 1971 though August 2012. 1. Begin by restricting the sample to the time period from January 1971 through December 2011. Observations in 2012 will be used to compare the forecasting abilitily of your selected model to actual observations of the data. 2. a. We will assume that the data series is generated from a model that is stationary. Additonally, you can assume that there is neither a deterministic trend nor deterministic seasonality in the data. Begin, by making an initial guess regarding the number of ARMA terms (e.g. p and q). For this step, provide a printout of the correlogram. In addition, provide a detailed write-up that indicates the models that could appropriately capture the observed patterns in the sample autocorrelations and partial autocorrelations. b. Estimate several models based on your guesses above. For each model, record the SIC and AIC (please provide these values). c. Select an appropriate model. Provide output related to the correlograms of the residuals from the estimated model you selected. Provide a write-up that explains why you believe your model is appropriate. Provide statistical details. 3. a. Provide a 8 step ahead forecast (a forecast for January 2012 through August 2012) directly from EViews for the data series. Provide a graph that contains each of the following: i. The forecasted series. ii. The 95% confidence intervals about your estimated forecast. iii. Actual observations for the data for several periods before the start of...