Page 301 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Statistical Methods in Economics

Notes Furthermore, although this method appears simple and direct, in actuality. it is very time consuming
to construct a freehand trend curve if a careful and conscientious job is to be done. For these reasons,
the freehand method is not recommended for fitting a trend line.
Example 1: Draw a time series graph relating to the following data and fit the trend by freehand
method.
Year : 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Production 150 155 165 152 174 150 170 175 160 178
(‘000 Qtls) :

Solution:
Y

180 Original Data
(Production (in ‘000’ Qtls.) 170 Trend
175

165
Line
160
155
150
0 X
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Merits of Graphic Method
(1) Simplest : This method of estimating trend is the simplest of all the methods of measuring
trend. It involves no calculation at all since it is purely non-mathematical.
(2) Easy to Fit Trend : This method makes possible rapid approximations of trend that are relatively
reliable. It gives a better expression of the secular movements.
(3) Flexible : This method is more flexible than rigid mathematical function, hence fits the curve more
closely to the data i.e this method can be used even in cases where the size of the series is lengthy.

Demerits of Graphic Method
(1) Trend Values are not Definite : This method involves no calculation or mathematical formulae,
hence the trend value cannot be definite. Different persons can draw different trend lines from
the same original data.
(2) Subjective Method : This method is a subjective method. Being subjective, it has little value as
a basis of future analysis of time series.
(3) Lack of Accuracy : This method lacks accuracy. Therefore, it is not suitable where a high degree
of accuracy is desired. This method gives us an approximate picture of the tendency in the long
run. This method should therefore be used only by experienced persons.
Limitations of Freehand Method

1. This method is highly subjective because the trend line depends on the personal judgment of
the investigator and, therefore, different persons may draw different trend lines from the same
set of data. Moreover, the work cannot be left to clerks and it must be handled by skilled and
experienced people who are well conversant with the history of the particular concern.
2. Since freehand curve fitting is subjective it cannot have much value if it is used as basis for
predictions.

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