The following table shows exports of machinery and transport equipment (in millions of dollars) from September of year 1 to April of year 4. Use these data to develop autoregressive models for a 1-month lag and a 4-month lag. Compare the results of these two models. Which model seems to yield better predictions? Why? Under what conditions would these models be more appropriate for forecasting than least squares methods? Explain.

Time period .............................. Machinery and transport

                                                       equipment exports ($ million)
(Year 1)
Sept. ................................................................ 1199
Oct. ................................................................. 1128
Nov. ................................................................ 1223
Dec. ................................................................. 1270
(Year 2)
Jan. ................................................................... 704
Feb. ................................................................ 1027
Mar. ................................................................ 1226
Apr. ................................................................ 1178
May ................................................................. 1171
June ................................................................ 1138
July ................................................................. 1071
Aug. ............................................................... 1173
Sept. ............................................................... 1102
Oct. ................................................................ 1316
Nov. ............................................................... 1275
Dec. ................................................................ 1461
(Year 3)
Jan. .................................................................. 762
Feb. ............................................................... 1049
Mar. ............................................................... 1425
Apr. ................................................................ 1153
May ............................................................... 1086
June ............................................................... 1287
July ................................................................. 1127
Aug. ............................................................... 1193
Sept. .............................................................. 1150
Oct. ................................................................ 1254
Nov. ............................................................... 1344
Dec. ............................................................... 1367
(Year ................................................................. 4)
Jan. ................................................................. 805
Feb. ............................................................... 1009
Mar. .............................................................. 1153
Apr. ............................................................... 1006