Salinas Savings and Loan is proud of its long tradition in Topeka, Kansas. Begun by Teresita Salinas 20 years after World War II, the S&L has bucked the trend of financial and liquidity problems that have repeatedly plagued the industry. Deposits have increased slowly but surely over the years, despite recessions in 1983, 1988, 1991, 2001, and 2008. Ms. Salinas believes it is necessary to have a long-range strategic plan for her firm, including a 1-year forecast and preferably even a 5-year forecast of deposits. She examines the past deposit data and also peruses Kansas’s gross state product (GSP), over the same 44 years. (GSP is analogous to gross national product [GNP] but on the state level.) The resulting data are in the following table:
(a) Using exponential smoothing, with α = .6, then trend analysis, and finally, linear regression discuss which forecasting model fits best for Salinas’s strategic plan. Justify the selection of one model over another.
(b) Carefully examine the data. Can you make a case for excluding a portion of the information? Why? Would that change your choice of model’?