Question: Consider the following portion of data on the variable y. t........................... y 1...................... 29.32 2...................... 30.96 ..................................... 24.................... 48.58 a. Estimate an autoregressive model

Consider the following portion of data on the variable y.

t........................... y

1...................... 29.32

2...................... 30.96

⋮..................................... ⋮

24.................... 48.58

a. Estimate an autoregressive model of order 1, yt = β0 + β1yt−1 + εt, to make a one-step-ahead forecast (t = 25) for y.

b. Estimate an autoregressive model of order 2, yt = β0 + β1yt−1 + β2yt−2 + εt , to make a one-step-ahead forecast (t = 25) for y.

c. Which of the above models is more appropriate for forecasts? Explain.

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