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, y_t = β₀ + β₁y_{t -}₁ + ε_t, and y_t = β₀ + β₁y_{t -}₁ + β₂y_{t - 2} + ε_t, 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): Compare Excel outputs for AR(1) and AR(2) and choose the forecasting model that seems to be better.

Question

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, y_t = β₀ + β₁y_{t -}₁ + ε_t, and y_t = β₀ + β₁y_{t -}₁ + β₂y_{t - 2} + ε_t, 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):

Compare Excel outputs for AR(1) and AR(2) and choose the forecasting model that seems to be better.

Quizplus · Accepted Answer

The Answer of 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, y_t = β₀ + β₁y_{t -}₁ + ε_t, and y_t = β₀ + β₁y_{t -}₁ + β₂y_{t - 2} + ε_t, 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): Compare Excel outputs for AR(1) and AR(2) and choose the forecasting model that seems to be better.

The Following Table Shows the Annual Revenues (In Millions of Dollars)