forecasting gas prices rory hofstatter shu-he lin chia-jung liu claudia muyle sooyeon shin adam...
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Forecasting Gas Prices
Rory Hofstatter Shu-He Lin
Chia-Jung Liu Claudia Muyle
Sooyeon Shin Adam Sutton
INTRODUCTIONGas prices and common commodity pricing
Gas prices peaked at $4.00 per gallon in 2008
Recession and gas prices
DATA COLLECTION RAW DATA
Weekly Regular Gas Prices
August 1990 – May 2010
1026 Observations
Data obtained from FRED
DATA VERIFICATION RAW DATARandom Walk – Needs to be Pre-Whitened
0
1
2
3
4
5
8/20/90 6/20/94 4/20/98 2/18/02 12/19/05 10/19/09
PRICEPERGAL
DATA VERIFICATION RAW DATADescriptive Statistics
– Correlogram
Slow decay in ACF and a
large spike at lag 1 in PACF
DATA VERIFICATION DATA TRANSFORMATION
Raw Data
Logarithmic Transformation
Seasonal Difference
First Difference of the Seasonal Difference of Log Price
(DSLNPRICEPGAL)
MODEL SPECIFICATIONARMA (1,2)
– Correlogram
Most of the structure
now removed but some
still remaining
MODEL SPECIFICATION
More Models Tried:
ARMA (1,3)
ARMA (1,4)
ARMA (2,4)
ARMA (2,5)
Best Fitting Model: ARMA (2,5)
MODEL VERIFICATIONTo test the accuracy of the forecasting model,
compare forecasted with Actual for last 26 weeks
FORECASTINGRecoloring the Forecast:
Workfile Window: Sample: 1026 1026
Workfile Window: GENR: slnpricepgalf = slnpricepgal
Workfile Window: Sample: 1 1052
Workfile Window: GENR: slnpricepgalf = slnpricepgal(-1) + dslnpricepgalf
Workfile Window: Sample: 1 1052
Workfile Window: GENR: lnpricepgalf = lnpricepgal(-52) + slnpricepgalf
Workfile Window: GENR: pricepgalf = exp(lnpricepgalf)
Workfile Window: GENR: ppgsef = exp(fdslnsef)
CONCLUSION
Regular gas price is predicted to stay stable around $2.80 per gallon for the next 16 weeks then drop down in price to approximately $2.20 per gallon.