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Forecasting Gas Prices

Forecasting Gas Prices. Rory Hofstatter Shu -He Lin Chia -Jung Liu Claudia Muyle Sooyeon Shin Adam Sutton. INTRODUCTION. Gas prices and common commodity pricing Gas prices peaked at $4.00 per gallon in 2008 Recession and gas prices. DATA COLLECTION RAW DATA.

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Forecasting Gas Prices

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  1. Forecasting Gas Prices Rory HofstatterShu-He Lin Chia-Jung Liu Claudia Muyle Sooyeon Shin Adam Sutton

  2. INTRODUCTION • Gas prices and common commodity pricing • Gas prices peaked at $4.00 per gallon in 2008 • Recession and gas prices

  3. DATA COLLECTIONRAW DATA • Weekly Regular Gas Prices • August 1990 – May 2010 • 1026 Observations • Data obtained from FRED

  4. DATA VERIFICATIONRAW DATA Random Walk – Needs to be Pre-Whitened

  5. DATA VERIFICATIONRAW DATA Descriptive Statistics – Histogram (Multi-Peaked and Positively Skewed)

  6. DATA VERIFICATIONRAW DATA Descriptive Statistics – Correlogram Slow decay in ACF and a large spike at lag 1 in PACF

  7. DATA VERIFICATIONRAW DATA Unit Root Test

  8. DATA VERIFICATIONDATA TRANSFORMATION Raw Data Logarithmic Transformation Seasonal Difference First Difference of the Seasonal Difference of Log Price (DSLNPRICEPGAL)

  9. DATA VERIFICATIONDSLNPRICEPGAL Descriptive Statistics –Line Graph

  10. DATA VERIFICATIONDSLNPRICEPGAL Descriptive Statistics – Histogram

  11. DATA VERIFICATIONDSLNPRICEPGAL Descriptive Statistics – Correlogram

  12. DATA VERIFICATIONDSLNPRICEPGAL Unit Root Test

  13. MODEL SPECIFICATION ARMA (1,1) –Estimation Output

  14. MODEL SPECIFICATION ARMA (1,1) – Correlogram of Residuals Some Structure Still Remaining

  15. MODEL SPECIFICATION ARMA (1,2) –Estimation Output

  16. MODEL SPECIFICATION ARMA (1,2) – Correlogram Most of the structure now removed but some still remaining

  17. MODEL SPECIFICATION • More Models Tried: • ARMA (1,3) • ARMA (1,4) • ARMA (2,4) • ARMA (2,5) • Best Fitting Model: ARMA (2,5)

  18. MODEL SPECIFICATION ARMA (2,5) –Estimation Output

  19. MODEL SPECIFICATION ARMA (2,5) – Actual, Fitted, Residual Graph

  20. MODEL SPECIFICATION ARMA (2,5) – Correlogram

  21. MODEL VERIFICATION To test the accuracy of the forecasting model, compare forecasted with Actual for last 26 weeks

  22. FORECASTING Forecast for 26 weeks into the future difference

  23. FORECASTING Forecast for 26 weeks into the future difference Zoomed

  24. FORECASTING Recoloring the Forecast: Workfile Window: Sample: 1026 1026 Workfile Window: GENR: slnpricepgalf = slnpricepgal Workfile Window: Sample: 1 1052 Workfile Window: GENR: slnpricepgalf = slnpricepgal(-1) + dslnpricepgalf Workfile Window: Sample: 1 1052 Workfile Window: GENR: lnpricepgalf = lnpricepgal(-52) + slnpricepgalf Workfile Window: GENR: pricepgalf = exp(lnpricepgalf) Workfile Window: GENR: ppgsef = exp(fdslnsef)

  25. FORECASTING Forecast for 26 weeks into the future – gas price per gallon

  26. FORECASTING Forecast for 26 weeks into the future – gas price per gallon (Zoomed)

  27. CONCLUSION • Regular gas price is predicted to stay stable around $2.80 per gallon for the next 16 weeks then drop down in price to approximately $2.20 per gallon.

  28. Source: economistmom.com

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