Finding Data
In this case, we will reuse the document from Step 1 Case #9 which can be downloaded here. As such, all data needed for the exercise will already be in the document.
Analysis
Regression
In the case #10 from Level 1, we established that the ISM PMI is a leading indicator of the Industrial Production in the US, by 4 months.
Now, you will have to build a regression model using this information.
Remember that the correlation results were based using a data sample starting in 2000-01.
- Select “Rate of change” in the tree
- Click on “Add” and choose Regression
The first step will be to set the model and the outputs needed:
- Set the Start range to 2000
- Check the tick-box “Output the dependent series”
- In the output, include “Residuals” and “Residuals for forecast”
Now, you should set the model itself: you want to explain the Industrial Production by the ISM PMI.
- Check “Include for both series”
- Pick Industrial Production as the dependent series
Also, the best correlation between the two series was when the ISM PMI was lagged by 4 months. You should include this in the model:
- For the ISM PMI, Set “Lag from” and “Lag to” to 4
Finally, and since you are lagging the explanatory series, you can calculate forecasts (for 4 months).
- Tick the box “Calculate forecasts”
Regression Report
As default, you always get a Report as first output of the regression analysis. You can check here several econometric statistics as well as the equation of the model.
Charting
- Add a “Time Chart” after the Regression analysis
Adding a separate pane
In our chart, we displayed the residuals in a secondary chart, below the main one. In Macrobond, we call this “Panes”. To add panes, you should:
- Go to Graph Layout
- Click on “Add pane”
- Drag the “residuals” time series to the new pane
- Change its type from “Line” to “Column”
You can also automatically set the proportion of the panes.
- For our case, click on the 3rd option from the right (2:1)
(You can also manually adjust the ratio between the two panes by dragging the lower edge of upper chart up or down)
Adding a title to the lower pane
Each Pane can have subtitles.
We begin by removing the redundant “%” sign on the lower pane:
- Click on it and hit delete.
Now, click on the background of the lower chart
- In “Presentation properties” Locate “Subtitle” in the “Elements group”, click on Edit…
- Having added your desired text, click on it and adjust the settings in “Presentation properties” to center the text
Customizing an observation label
We will now briefly explore Dynamic properties to customize a text in Macrobond. First, add a chart annotation to the Industrial production:
- Go to the “Chart annotations” tab
- Choose “Observation label”
- Click on the last observation of the predicted series
To edit the text:
- Double-click the newly created observation label
- Change the text to: “Forecast for”
Then, add dynamic properties after this text:
- Open the dynamic properties menu, on the right
- In the tree, add “Current > Date” with the red + sign
- Go to a new line, and add “Current > Value”, followed by a ‘%’ sign
Finally, you can edit the format of the dynamic text:
- Click on the expression “{s.Date}
- Change the format to “Y”, using the drop-down menu
This will change the date-format to displaying the name of the month instead of the number.
However, right now, this observation label is associated to a specific date. You might want to always refer to the last predicted value when the chart will be updated. To remedy this:
- Click on the observation label
- On the “Presentation properties” tab, locate “Range”
- Change both the start and end of the interval to +0
The observation label will now always point to the last value of the Industrial Production series, and the text created using dynamic properties will also get updated automatically.
Other changes:
- Chart title
- Legend text
- Legend position
- Y-axis text for the top pane