Seasonal Variation by Link Relative Method Lecture 08

 Seasonal Variation by Link Relative Method 

Lecture 08

(Pearson’s Method)

The Pearson's method is another name for this approach. The percentages obtained by this method are called 'link relatives', as these links are each month to the preceding one. The following list of stages summarises this method:

Use the following formula to transform the monthly (or quarterly) data into link relatives:

Calculate the average of link relatives of each month  or  quarter using either the median or the arithmetic mean.

Convert the link relatives (L.R.) into chain relatives (C.R.) by using the formula:

The C.R. for the first month (or quarter) is assumed to be 100.

Compute the new chain relative for January (first month) on the basis of December (last month) using the formula:

The new C.R. is usually not equal to 100 and therefore needs to be multiplied with the monthly correction factor:

If the figures are given quarterly, then the correction factor would be

The corrected C.R. for other months can be calculated by using the formula:

The correction factor would be

Practice Question

Calculate the indices of seasonal variation by the link-relative method from the following data.

 

Year	Quarter 1	Quarter 2	Quarter 3	Quarter 4
1970	112	125	129	110
1971	119	132	147	115
1972	120	142	150	118
1973	128	151	162	125

Solution:

i. 

ii. Next, we calculate chain relatives for four quarters, taking the value of first quarter is 100

Convert the link relatives (L.R.) into chain relatives (C.R.) by using the formula:

Chain relative for Q – I:

Quarter	1	2	3	4	1
Chain relatives	100	114.44	121.82	95.55	103.37

The correction factor would be:

Subtract d/4  from quarter 2,  2d/4 from quarter 3 and 3d/4 from quarter 4

Quarter	1	2	3	4	Total
Adjusted chain relatives	100	113.60	120.13	93.02	426.75
Seasonal index	93.73	106.50	112.60	87.2	400.03

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