Forecasting Using Eviews

September 27 or 29, 2006

Example: Housing Starts in US (Houses) as a function of the interest rate

for fixed rate first mortgages (r)
In this example our sample is monthly data 1975.01 to 2006.08. We want to make
forecasts for Houses for the next 6 months (2006.09 - 2007.02).
Houses = U.S. Housing Starts, SA, thousand units, annual rate
r = interest rate: fixed rate first mortgages, NSA, percent
This data is already in an Eviews workfile. The example starts from that point.

1. Expand the sample range and enter new data for the new time periods:
o PROCS/CHANGE WORKFILE RANGE

o change ending date from 2006.08 to 2007.02

o click on SAMPLE and change that end date also to 2007.02

o from Workfile window double click on variable r to go to spreadsheet

o click edit button and add data for r for the 6 month forecast period (we'll
just assume it won’t change, so we’ll put in the most recently observed
value, 6.52%)

2. Obtain and work with forecasts:

o QUICK/ESTIMATE EQUATION and use LS to do a regression to
explain Houses
o even though you are in sample 1975.01 – 2007.02, the regression will only
use data up to 2006.08 because you have no Houses data for the other 6
months
Dependent Variable: HOUSES
Method: Least Squares
Date: 09/25/06 Time: 16:15
Sample(adjusted): 1975:01 2006:08
Included observations: 380 after adjusting endpoints
Variable Coefficient Std. Error t-Statistic Prob.
C 1932.810 50.95092 37.93473 0.0000
R -40.37358 5.159744 -7.824726 0.0000
R-squared 0.139396 Mean dependent var 1551.303
Adjusted R-squared 0.137119 S.D. dependent var 310.4068
S.E. of regression 288.3412 Akaike info criterion 14.17142
Sum squared resid 31427156 Schwarz criterion 14.19215
Log likelihood -2690.569 F-statistic 61.22634
Durbin-Watson stat 0.168399 Prob(F-statistic) 0.000000

o from the regression results window click on FORECAST

o in FORECAST box:

 Give a name to the forecast variable and to the standard error of

the forecast (SEF is good).
 Choose Dynamic or Static (your choice only matters if there are
lagged dependent variables in the model)
 Dynamic - uses the previously forecasted value of the
lagged dependent variable
 Static - uses the actual value of the lagged dependent
variable
 Check Do Graph and/or Forecast Evaluation to get forecast
evaluation information.
 Enter the desired Sample range for the forecast.
 Check “Insert Actuals for out-of-sample”
For our example, name the forecast Housesf, name the standard error of
the forecast SEF, choose Static, Forecast Evaluation, Do Graph and set
sample range to 1975.01 – 2007.02.
o Click OK and you will see the Forecast Evaluation results.
2400
Forecast: HOUSESF
Actual: HOUSES
2000 Forecast sample: 1975:01 2007:02
Included observations: 380

1600 Root Mean Squared Error 287.5814

Mean Absolute Error 235.4219
Mean Abs. Percent Error 16.37248
1200 Theil Inequality Coefficient 0.091657
Bias Proportion 0.000000
Variance Proportion 0.456285
800 Covariance Proportion 0.543715

400
1975 1980 1985 1990 1995 2000 2005

HOUSESF

o Return to Workfile window where you will now have new variables
Housesf and sef that are your forecast and the standard error of the
forecast.
o You can make graphs of Houses and Housesf to see the actual and forecast
data together. Use a Quick Graph/ line graph.

2400

2000

1600

1200

800

400
1975 1980 1985 1990 1995 2000 2005

HOUSES HOUSESF
 o You can select variables to see a spreadsheet of r, Houses, Housesf, and
SEF. Confidence intervals can be made for the forecast using this
information.

date r houses housesf sef

2004:09 5.750000 1905.000 1700.662 289.3506
2004:10 5.720000 2072.000 1701.873 289.3609
2004:11 5.730000 1782.000 1701.469 289.3574
2004:12 5.750000 2042.000 1700.662 289.3506
2005:01 5.710000 2137.000 1702.276 289.3643
2005:02 5.630000 2213.000 1705.506 289.3921
2005:03 5.930000 1856.000 1693.394 289.2908
2005:04 5.860000 2079.000 1696.220 289.3137
2005:05 5.720000 2034.000 1701.873 289.3609
2005:06 5.580000 2078.000 1707.525 289.4098
2005:07 5.700000 2070.000 1702.680 289.3677
2005:08 5.820000 2075.000 1697.835 289.3270
2005:09 5.770000 2158.000 1699.854 289.3438
2005:10 6.070000 2046.000 1687.742 289.2464
2005:11 6.330000 2131.000 1677.245 289.1686
2005:12 6.270000 2002.000 1679.667 289.1860
2006:01 6.150000 2265.000 1684.512 289.2218
2006:02 6.250000 2132.000 1680.475 289.1919
2006:03 6.320000 1972.000 1677.649 289.1715
2006:04 6.510000 1832.000 1669.978 289.1184
2006:05 6.600000 1953.000 1666.344 289.0944
2006:06 6.680000 1833.000 1663.114 289.0737
2006:07 6.760000 1772.000 1659.884 289.0536
2006:08 6.520000 1665.000 1669.574 289.1157
2006:09 6.520000 NA 1669.574 289.1157
2006:10 6.520000 NA 1669.574 289.1157
2006:11 6.520000 NA 1669.574 289.1157
2006:12 6.520000 NA 1669.574 289.1157
2007:01 6.520000 NA 1669.574 289.1157
2007:02 6.520000 NA 1669.574 289.1157

Note: sample mean for r is 9.450

Observe how sef varies with distance of r from its mean, 9.450.