Question;Auto Parts Sales ForecastTed Ralley, the director of marketing research of a large manufacturer of spare parts for automobiles, is working on the sales forecast for the next year. He knows that forecast errors are costly and wants to forecast the sales as accurately as possible. He collected the data on quarterly sales for the previous four years and ran several forecasts using time series forecasting methods, but he was still concerned. Ted believes that economic activity and oil prices has a significant impact of auto parts sales and decided to check if the sales can be predicted better using econometric variables.Assignment: Auto Parts Sales ForecastEstimate a regression model with trend & season dummies to forecast the next year sales:1) Use estimated regression coefficients to compute in-sample forecasts for sales2) For the forecasted quarterly sales in years 2006 and 2007 calculate:o Erroro Squared erroro Absolute % erroro The numerator of Thiel?s U statistico The denominator of Thiel?s U statistic3) Calculate the following error metrics: mean error (ME), mean squared error (MSE), root mean squared error (RMSE), mean absolute percent error (MAPE), and Thiel?s U statistic4) Compute sales forecast in the year 2008Estimate another regression model, but this time use M2 Index, non-farm activity index, and oil prices as predictors to forecast the next year sales. Repeat steps 1) ? 4) and calculate error metrics for years 2006-2007 and sales forecast in the year 2008.Compute sales forecasts using additive Holt-Winters model. Repeat steps 1) ? 3) and calculate error metrics for years 2006-2007. Calculate the optimal alpha, beta, and gamma parameters of the model using MS Excel Solver so as to minimize RMSE. Compute sales forecast in the year 2008.Compare the error metrics (ME, RMSE, MAPE, Thiel?s U) of the four models.Construct a line plot showing the actual quarterly sales and forecast by these models.
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