Time Series Analysis | UGC NET Economics – Notes

Introduction

• The nature of data varied from case to case. You have come across quantitative data for a group of respondents collected with a view to understanding one or more parameters of that group, such as investment, profit, consumption, weight etc. But when a nation, state, an institution or a business unit etc., intend to study the behavior of some element, such as price of a product, exports of a product, investment, sales, profit etc., as they have behaved over a period of time, the information shall have to be collected from a fairly long period, usually at equal time intervals. Thus, a set of any quantitative data collected and arranged on the basis of time is called Time Series. The unit of time may be a decade, a year, a month, or a week etc.

• Usually, the quantitative data of the variable under study are denoted by \(Y_{1}, Y_{2}, \ldots, Y_{n}\) and the corresponding time units are denoted by \(t_{1}, t_{2}, \ldots, t_{n}\). The variable (Y) shall have variations, as you will see ups and downs in the values. These changes account for the behavior of that variable.

• Instantly it comes to our mind that time is responsible for these changes, but this is not true. Because, the time \((t)\) is not the cause and changes in the variable \((Y)\) are not the effect. The only fact, therefore, which we must understand is that there are a number of causes which affect the variable and have operated on it during a given time period. Hence, time becomes only the reference for arranging the observations.

• Forecasting any event helps in the process of decision making. Forecasting is possible if we are able to understand the past behavior of that particular activity. For understanding the past behavior, a researcher needs not only the past data but also a detailed analysis of the same.