This assignment is worth either 20% or 25% of the final
grade, and is worth a total of 75 points. All working must be shown for all
questions. For questions which ask you to write a program, youmust pro-
vide the code you used. If you have found code and then modified it, then
the original sourcemust be cited. The assignment is due by 5pmFriday 1st
of October (Friday of Week 8), using Turnitin on Wattle. Late submissions
will only be accepted with prior written approval. Good luck.
Question 1: [10 marks]
In this exercise we will consider four different specifications for forecasting monthly
Australian total retail sales. The dataset (available onWattle) AUSRetail2021.csv
contains three columns;
the first column contains the date; the second contains the sales figures for
that month, and the third contains Australian GDP for that month.
1 The data runs from January 1992 to January 2021.
Let Mit be a dummy variable that denotes the month of the year. Let
Dit be a dummy variable which denotes the quarter of the year. The four
specifications we consider are
a) For each specification, describe this specification in words.
b) For each specification, estimate the values of the parameters, and
compute theMSE, AIC, and BIC. If you make any changes to the csv
file, please describe the changes you make. As always, you must
include your code.
c) For each specification, compute the MSFE for the 1-step and 3-step
ahead forecasts, with the out-of-sample forecasting exercise begin-
ning at T0 = 60.
d) For each specification, plot the out-of-sample forecasts and comment
on the results.
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