Forecasting correlated time series with exponential smoothing models

Forecasting correlated time series with exponential smoothing models

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Article ID: iaor20112089
Volume: 27
Issue: 2
Start Page Number: 252
End Page Number: 265
Publication Date: Apr 2011
Journal: International Journal of Forecasting
Authors: , ,
Keywords: stochastic processes, simulation: applications
Abstract:

This paper presents the Bayesian analysis of a general multivariate exponential smoothing model that allows us to forecast time series jointly, subject to correlated random disturbances. The general multivariate model, which can be formulated as a seemingly unrelated regression model, includes the previously studied homogeneous multivariate Holt‐Winters’ model as a special case when all of the univariate series share a common structure. MCMC simulation techniques are required in order to approach the non‐analytically tractable posterior distribution of the model parameters. The predictive distribution is then estimated using Monte Carlo integration. A Bayesian model selection criterion is introduced into the forecasting scheme for selecting the most adequate multivariate model for describing the behaviour of the time series under study. The forecasting performance of this procedure is tested using some real examples.

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