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External analysis

6.4 Using time series to forecast

Additive model:

Prediction = T + S (where T = the trend line and S = the seasonal variation)

Multiplicative model

Prediction = T × S (S is normally represented as a percentage)

6.5 Limitations of time series analysis

 There is an assumption that what has happened in the past is a
reliable guide to the future.

 There is an assumption that a straight-line trend exists.

 There is an assumption that seasonal variations are constant,
either in actual values using the additive model (such as dollars of
sales) or as a proportion of the trend line value using the
multiplicative model.

Illustrations and further practice

Now try TYU question 7.

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