Forecasting in Excel Using Simple Linear Regression

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Summary

The video provides a detailed walkthrough of running a regression forecast using simple linear regression for data with a growth component. It demonstrates how to calculate the intercept and slope using Excel functions like INTERCEPT and SLOPE. The importance of fixing cell references in the regression equation for accurate forecasting is highlighted, along with assessing forecast accuracy through various error calculations like absolute error and percentage error. The U statistic is discussed as a key metric to evaluate the quality of the forecast.


Introduction to Regression Forecasting

Explanation of running a regression forecast based on a simple linear regression with the estimation of intercept and slope to create a forecast for data with a growth component.

Calculating Intercept and Slope

Step-by-step calculation of the intercept and slope using Excel functions: INTERCEPT and SLOPE based on known y's (output) and known X's (time series).

Creating the Forecast Equation

Demonstration of typing the regression equation using INTERCEPT and SLOPE values, ensuring the formula stays put by fixing cell references, and copying it for a 2-year forecast.

Accuracy Analysis of the Forecast

Explanation of determining forecast accuracy by calculating forecast error, absolute error, percentage error, squared error, and the denominator for the U statistic to evaluate forecast quality.


FAQ

Q: What is the purpose of running a regression forecast based on a simple linear regression?

A: The purpose is to create a forecast for data with a growth component by estimating the relationship between the independent variable and the dependent variable.

Q: What does the intercept in a regression equation represent?

A: The intercept represents the value of the dependent variable when the independent variable is zero.

Q: How is the slope in a regression equation interpreted?

A: The slope represents the change in the dependent variable for a one-unit change in the independent variable.

Q: What Excel functions are used to calculate the intercept and slope in a simple linear regression?

A: The INTERCEPT function is used to calculate the intercept, and the SLOPE function is used to calculate the slope.

Q: Why is it important to fix cell references when typing the regression equation in Excel?

A: Fixing cell references ensures that the formula stays consistent and does not change when copied to other cells.

Q: How can forecast accuracy be determined in regression forecasting?

A: Forecast accuracy can be determined by calculating forecast error, absolute error, percentage error, squared error, and using the U statistic as a denominator to evaluate forecast quality.

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