After estimating a trend model for annual time-series data, you obtain the following residual plot against time, the problem with your model is that
A)the cyclical component has not been accounted for.
B)the seasonal component has not been accounted for.
C)the trend component has not been accounted for.
D)the irregular component has not been accounted for.

Question

After estimating a trend model for annual time-series data, you obtain the following residual plot against time, the problem with your model is that
A)the cyclical component has not been accounted for. 
B)the seasonal component has not been accounted for. 
C)the trend component has not been accounted for. 
D)the irregular component has not been accounted for.

Quizplus · Accepted Answer

The residual plot against time suggests that there is a pattern in the residuals, indicating that the trend component has not been adequately accounted for in the model. If the cyclical or seasonal components were not accounted for, the residuals would exhibit a pattern that repeats itself over time, such as a sinusoidal shape or a pattern that recurs at the same time each year. If the irregular component were not accounted for, we would expect to see residuals that are randomly scattered around zero. The residual plot against time shows that there is still a pattern in the residuals over time, indicating that the trend component has not been fully accounted for in the model. A good model should have random, non-patterned residuals. The other options (A, B, and D) involve components that may also need to be accounted for in a time-series model, but are not specifically indicated by the pattern in the residual plot.

After Estimating a Trend Model for Annual Time-Series Data, You