Answer the question on the basis of the article "The Demand for Coffee in the United States: 1963-1977".
In their article, "The Demand for Coffee in the United States: 1963-1977" (Quarterly Review of Economics and Business, Summer 1980, pp. 36-50), C. J. Huang, J. J. Siegfried, and F. Zardoshty estimated the following regression equa¬tion using quarterly data for the 58 quarters running from the first quarter of 1963 through the second quarter of 1977: ln Qt = 1.2789 - 0.1647 ln Pt - 0.5115 ln It + 0.143 ln Pt - 0.0089T (-2.14) (1.23) (0.55) (-3.36) -0.0961D1t - 0.1570D2t - 0.0097D3t (-3.74) (-6.03) (-0.37) R2=0.80 D - W = 2.08 where Qt = quantity (in pounds) of coffee consumed per capita (for population over 16 years of age) in quarter t Pt = relative price of coffee per pound in quarter f, at 1967 prices It = per capita disposable personal income in quarter r, in thousands of 1967 dollars P`t =relative price of tea per quarter pound in quarter t, at 1967 prices T = time trend; T = 1 for first quarter of 1963 to T = 58 for second quarter of 1977 Dit = dummy variable equal to 1 for first quarter (spring) and 0 otherwise D2t = dummy variable equal to 1 for second quarter (summer) and 0 otherwise D3t = dummy variable equal to 1 for third quarter (fall) and 0 otherwise The numbers in parentheses below the estimated coefficients are f statistics.
Using the above estimated regression equation for the seasonal demand for coffee in the United States and predicting that the values of the independent or explanatory variables in the demand equation from the third quarter of 1977 to the second quarter of 1978 are those indicated in die table below,
forecast the de¬mand for coffee for
(a) the third quarter of 1977,
(b) the fourth quarter of 1977,
(c) the first quarter of 1978, and
(d) the second quarter of 1978.
(e) How much confidence can we have in these forecasts? What could cause the forecasting er¬ror to be very large?
Quarter P________Y P` 1977.3 1.86 3.57 1.10 1977.4 1.73 3.60 1.08 1978.1 1.60 3.63 1.07 1978.2 1.46 3.67 1.05