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# P1.T2. - Chapter 10. GARP Material practice questions.

#### MilaBank

##### New Member
Subscriber
Hi guys. I am following both bionic turtle and GARP materials and have a question about the second one. in chapter 10, question 10.18 the task is to forecast RGDPG with AR(2) model using formula yt = 1.765 + 0.319* y(t-1)+0.114*y(t-2). Fairly straightforward, but i do not understand where the got the number 2.564 from and why 2.793 is used for for t-2 period. I saw a fair amount of typos in the materials, so suspect it is in that direction, but would appreciate any help if it is not. Thank you!

#### Nicole Seaman

Staff member
Subscriber
Hi guys. I am following both bionic turtle and GARP materials and have a question about the second one. in chapter 10, question 10.18 the task is to forecast RGDPG with AR(2) model using formula yt = 1.765 + 0.319* y(t-1)+0.114*y(t-2). Fairly straightforward, but i do not understand where the got the number 2.564 from and why 2.793 is used for for t-2 period. I saw a fair amount of typos in the materials, so suspect it is in that direction, but would appreciate any help if it is not. Thank you!
Hello @MilaBank

Can you please copy/paste (not an image) the question and answer that you are referring to so everyone in the forum knows what you are referencing? Thank you.

#### MilaBank

##### New Member
Subscriber
ah, of course, was not entirely sure if that is allowed per copyright or smth

The 2018Q4 value of real GDP growth is RGDPGT-1 = 2.793. What are the forecasts for 2019Q1 – 2019Q4 using the AR(2) model in Table 10.1?
(May, 10/2019, p. 194)

Solution:
All forecasts are recursively computed starting with the first:
1.765 + 0.319 * 2.564 + 0.114 * 2.793 = 2.90. (May, 10/2019, p. 197)

May, B. (2019). 2020 Financial Risk Management Part I: Quantitative Analysis, 10th Edition. [[VitalSource Bookshelf version]]. Retrieved from vbk://9780136594659

Model specifications per that table are yt = 1.765 + 0.319* y(t-1)+0.114*y(t-2).

#### David Harper CFA FRM

##### David Harper CFA FRM
Staff member
Subscriber
Hi @MilaBank There are typos in almost every exercise that I've recreated in the TS chapter, and there is one here but it's minor. The 2.564 comes from page 180:
"The final real GDP growth rate is RGDPGT = 2.564 in 2018Q4. Forecasts" May, B. (2019). 2020 Financial Risk Management Part I: Quantitative Analysis, 10th Edition.
So GARP's 10.18 reads "The 2018Q4 value of real GDP growth is RGDPG(T-1) = 2.793" but I think it just should read "The 2018Q3 value of real GDP growth was RGDPG(2018Q3) = 2.793" ... unless it's some too clever (?) way of trying to say that 2.793 is Q3 because it is (t-1) from the perspective of Q4, but there's no reason to so that so i think it's just another typo

But then the solution works for me:

2018Q3: RGDPG = 2.793
2018Q4: RGDPG = 2.564
2019Q1 = 1.765 + 0.319*2.564 + 0.114*2.793 = 2.9013,
2019Q2 = 1.765 + 0.319*2.9013+ 0.114*2.564 = 2.9828, ...

hope that helps!

#### MilaBank

##### New Member
Subscriber
Hi @MilaBank There are typos in almost every exercise that I've recreated in the TS chapter, and there is one here but it's minor. The 2.564 comes from page 180:

So GARP's 10.18 reads "The 2018Q4 value of real GDP growth is RGDPG(T-1) = 2.793" but I think it just should read "The 2018Q3 value of real GDP growth was RGDPG(2018Q3) = 2.793" ... unless it's some too clever (?) way of trying to say that 2.793 is Q3 because it is (t-1) from the perspective of Q4, but there's no reason to so that so i think it's just another typo

But then the solution works for me:

2018Q3: RGDPG = 2.793
2018Q4: RGDPG = 2.564
2019Q1 = 1.765 + 0.319*2.564 + 0.114*2.793 = 2.9013,
2019Q2 = 1.765 + 0.319*2.9013+ 0.114*2.564 = 2.9828, ...

hope that helps!
That helps a lot, cannot believe how much time i spent trying to figure out what i am doing wrong. Thank you!