Tuesday, February 24, 2015

Forecast of Guam Variables for Calendar Year 2015 First Quarter

Recently, the Current Employment Report has come out with less than stellar performance for the last quarter of 2014.  Total employment declined.  My first forecast was not as accurate as I would have liked.  In retrospect, I used too many lags of data in my VAR and univariate models.  Furthermore, I was working to reduce the root mean squared error a bit too hard.  This time, I have one model, with three (kinda four) variables.  I am, once again, employing a Vector Autoregression.  My variables are:

Acceleration of (d^2) CPI inflation,
Acceleration of (d^2) Hourly wage inflation, and
Change (d) in Employment relative to the change.

After adjusting to the figures published for CPI, Average Hourly Private Sector Wage (AHW), and Total Employment (Emp), I have the following forecast results:

2015, 1st Quarter:
CPI:       118.6    (~2)
AHW:    13.30   (~0.37)
Emp:      63,010 (~1,050)

In the future, I'd like to try to tighten up my one point ahead forecasts, perhaps by combining multiple methods of estimation.

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