Chapter 5

Business and Economic Forecasting

Econometric Model
Econometric models are statistical models used in econometrics. An econometric model specifies the
statistical relationship that is believed to hold between the various economic quantities pertaining to
a particular economic phenomenon.
Some of the common econometric models are:
 Linear regression.
 Generalized linear models.
 Probit models
 Logit models, etc.
Econometric forecasting model is a tool that reveals relationships among economic variables to
forecast future developments. The concept introduces this term by briefly describing the
development and history of the model and exploring its strengths and weaknesses.

Forecasting with Input- Output Table

Input - Output Analysis (I-O) is a form of macroeconomic analysis based on the
interdependencies between different economic sectors or industries.
Input - Output Table are matrixes of coefficients showing how each and every sector of
the economy relates to each other. The sectors naturally include industrial sectors, but also a
government sector and a private consumer sector.
Approach is to study how known conditions in one or a number of sectors will affect other sectors
and the entire economy.

Stochastic Time-Series Analysis

Stochastic process may be described as a phenomenon unfolding in 'time'according to certain
probability laws. Here, the word 'time' is used as a real variable which may not always stand for time.
A geological process may be viewed as a stochastic process because it is associated with
different geochemical elements-each of which can be treated as Random Variable having a
probability distribution.
Stochastic Process is a statistical phenomenon consisting of a collection of random variables ordered
in time.
Time Series is a variation with time in amplitude and polarity of a measured physical quantity.
The stochastic process is a model for the analysis of time series. is considered to generate the infinite
collection (called the ensemble) of all possible time series that might have been observed.
The ensemble of a stochastic process is a statistical population. An observed time series is considered
to be one realization of a stochastic process.