Page 280 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Statistical Methods in Economics Pavitar Parkash Singh, Lovely Professional University

Notes Unit 22: Time Series Analysis—Introduction and

Components of Time Series

CONTENTS
Objectives
Introduction
22.1 Introduction to Time Series Analysis
22.2 Components of Time Series
22.3 An Illustration Involving All Components
22.4 Summary
22.5 Key-Words
22.6 Review Questions
22.7 Further Readings

Objectives

After reading this unit students will be able to:
• Know the Introduction to Time Series Analysis.
• Discuss Components of Time Series.
• Explain an Illustration Involving All Components.
Introduction

One of the major managerial responsibilities is the design and implementation of policies for the
achievement of the short-term and long-term goals of the business firm. Previous performances must
be studied so as to generate or forecast future business activity. Given a projection of the pattern and
the level of future business activity, the desirability of alternative actions can then be investigated.
For example, we may be interested to project sales activity levels with maintenance of adequate but
not excessive inventory levels. Labour and material requirements must be projected. Need of working
capital must be anticipated, and appropriate arrangements for financing investigated. The suitability
and timing of capital intensive projects must be carefully evaluated. And lastly, once a strategy has
been selected, control procedures must be incorporated to enable the firm to reassess the validity of
the original projected values and the extent to which the actual results vary on a continuous basis.
The quality of the forecasts or projections the management can make is strongly related to the
information that can be extracted and used from past data. Time series analysis is one of the quantitative
methods used to determine the patterns in data collected over a period of time. Thus, a time series
consists of a set of chronological observations of a statistical series recorded either at successive
points in time or over successive periods of time.
22.1 Introduction to Time Series Analysis

A series of observations recorded over time is known as a time series. The data on the population of a
country over equidistant time points constitute a time series, e.g. the population of India recorded at
the ten-yearly censuses. Some other examples of time series are: annual production of a crop, say,
rice over a number of years, the wholesale price index over a number of months, the turn-over of a firm
over a number of months, the sales of a business establishment over a number of weeks, the daily
maximum temperature of a place over a number of days, and so on. In fact, economic data are, in
general, recorded over time and are released at regular intervals. These constitute economic time series.

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