According to the Census Bureau, the number of people below the poverty level has been steadily increasing (CNN, September 16, 2010). This means many families are finding themselves there for the first time. The following table shows a portion of the percent of families in the United States who are below the poverty level from 1986-2009. The full data set can be found on the text website, labeled Poverty Rate.
a. Plot the above series and comment on its shape.
b. Use a 3-period moving average to make in-sample forecasts. Compute the resulting MSE and MAD.
c. Use the exponential smoothing method to make insample forecasts with α = 0.6. Compute the resulting MSE and MAD.
d. Choose the appropriate model to make a forecast of the poverty rate in 2010.