ECONOMY ANALYSIS

Forecasting Techniques

FORECASTING TECHNIQUES

Anticipatory Surveys

Indicator Approach

Econometric Model Building

Opportunistic Model Building

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Anticipatory SurveysMuch of the activities in government, business, trade and industry are planned in advance and stated in the form of budgets. Consumers also plan for their major spending in advance. To the extant that institutions and people plan and budget for expenditures in advance , surveys of their intentions can provide valuable input to short-term economic forecasting.

Anticipatory Surveys are the surveys are the surveys of intentions of people in government, business, trade and industry regarding their construction activities, plant and machinery expenditures, level of inventory, etc., such surveys may also include the future plans of consumers with regard to their spending on durables and non-durables. Based on the results of these surveys, the analyst can form his own forecast of the future state of the economy.

Indicator ApproachIn this approach to economic forecasting, various types of indicators are studied to find out how the economy is likely to perform in the future. These indicators are time series data of certain economic variables. The indicators are classified into leading, coincidental and lagging indicatorsLeading Indicators :

• Average weekly hours of manufacturing production workers

• Average weekly initial unemployment claims

• Contract and orders for plant and machinery

Coincidental Indicators:• Employees on non-

agricultural pay rolls• Personal income less

transfer payments• Index of industrial

production• Manufacturing and trade

sales

Lagging Indicators:• Ratio of manufacturing

and trade inventories to sales

• Average duration of unemployment

• Commercial and industrial loans outstanding.

Econometric Model BuildingThis is the most precise and scientific of the different forecasting techniques. This technique make use of Econometric, Which is a discipline that applies mathematical and statistical techniques theory.

In the economic field we find complex interrelationships between the different economic variables. The precise relationships the dependent and independent variables are specified in a formal mathematical manner in the form of equations.

Econometrics : Is the application of statistical methods to economic data and is described as the branch of economics that aims to give empirical content to economic relations.

Opportunistic Model BuildingThis is one of the most widely used forecasting techniques. It is also known as GNP model building or sectoral analysis.

This initial estimate takes into consideration the prevailing economic environment such as the existing tax rates, interest rates, rate of inflation and other economic and fiscal policies of the government.