When are Direct Multi-step and Iterative Forecasts Identical?

When are Direct Multi-step and Iterative Forecasts Identical?

0.00 Avg rating0 Votes
Article ID: iaor201526521
Volume: 34
Issue: 4
Start Page Number: 315
End Page Number: 336
Publication Date: Jul 2015
Journal: Journal of Forecasting
Authors:
Keywords: error analysis, iterative methods
Abstract:

Although both direct multi‐step‐ahead forecasting and iterated one‐step‐ahead forecasting are two popular methods for predicting future values of a time series, it is not clear that the direct method is superior in practice, even though from a theoretical perspective it has lower mean squared error (MSE). A given model can be fitted according to either a multi‐step or a one‐step forecast error criterion, and we show here that discrepancies in performance between direct and iterative forecasting arise chiefly from the method of fitting, and is dictated by the nuances of the model's misspecification. We derive new formulas for quantifying iterative forecast MSE, and present a new approach for assessing asymptotic forecast MSE. Finally, the direct and iterative methods are compared on a retail series, which illustrates the strengths and weaknesses of each approach.

Reviews

Required fields are marked *. Your email address will not be published.