1. DRQ #12 – November 15, 2011 DRQ12 is worth 5 pts
1. Suppose we wish to analyze the Japanese Yen to U.S. dollar exchange rate. The exchange rate deals with the number of Yen per U.S. dollar. Let YenUS(t) represent the Japanese Yen to U.S. dollar exchange rate in time period t. Suppose that: YenUS(t) = YenUS(t -1) + 0.4YenUS(t – 2) (1pt) (a) What is the technical name of this model representation? AR(2) (2pts) (b) Suppose that Yen to U.S. dollar exchange rates for September 2011 and October 2011 were 90 and 80 respectively. Forecast the exchange rate for November *80+.4*90=82 (2pts) 2. In general, list two forecast accuracy criteria you would use in choosing between MA models and AR models. MAE, MAPE, RMSE