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The following table shows the annual revenues (in millions of dollars)of a pharmaceutical company over the period 1990-2011. The autoregressive models of order 1 and 2,yt = β0 + β1yt - 1 + εt,and yt = β0 + β1yt - 1 + β2yt - 2 + εt,were applied on the time series to make revenue forecasts.The relevant parts of Excel regression outputs are given below.
Model AR(1):
Model AR(2):
When for AR(1),H0: β0 = 0 is tested against HA: β0 ≠ 0,the p-value of this t test shown by Excel output is 0.9590.This could suggest that the model yt = β1yt-1 + εt might be an alternative to the AR(1)model yt = β0 + β1yt-1 + εt.Excel partial output for this simplified model is as follows:
(Use Regression in Data Analysis of Excel. )
Compare the autoregressive models yt = β0 + β1yt-1 + εt;yt = β0 + β1yt-1 + β2yt-2 + εt,andyt = β1yt-1 + εt,through the use of MSE and MAD.
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