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Comparative Evaluation of Forecast Accuracies for ARIMA, Exponential Smoothing and VAR

Author

Listed:
  • Hatice Erkekoglu

    (Faculty of Applied Sciences, Kayseri University, Kayseri, Turkey)

  • Aweng Peter Majok Garang

    (Faculty of Economics and Administrative Sciences, Erciyes University, Kayseri, Turkey,)

  • Adire Simon Deng

    (Department of Accounting and Finance, Moi University, Kenya.)

Abstract

While various linear and nonlinear forecasting models exist, multivariate methods like VAR, Exponential smoothing, and Box-Jenkins ARIMA methodology constitute the widely used methods in time series. This paper employs series of Turkish private consumption, exports and GDP data ranging between 1998: Q1 and 2017: Q4 to analyze the forecast performance of the three models using measures of accuracy such as RMSE, MAE, MAPE, Theil s U1 and U2. Seasonal decomposition and ADF unit root tests were performed to obtain new deseasonalized series and stationarity, respectively. Results offer preference for the use of ARIMA in forecasting, having performed better than VAR and exponential smoothing in all scenarios. Additionally, VAR model provided better forecast accuracy than exponential smoothing on all measures of accuracy except on Thiel s U2 whose VAR values were not computed. Cautionary use of ARIMA for forecasting is recommended.

Suggested Citation

  • Hatice Erkekoglu & Aweng Peter Majok Garang & Adire Simon Deng, 2020. "Comparative Evaluation of Forecast Accuracies for ARIMA, Exponential Smoothing and VAR," International Journal of Economics and Financial Issues, Econjournals, vol. 10(6), pages 206-216.
    • Handle: RePEc:eco:journ1:2020-06-24
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    References listed on IDEAS

    as
    1. Cem Kadilar & Muammer Simsek & Cagdas Hakan Aladag, 2009. "Forecasting The Exchange Rate Series With Ann: The Case Of Turkey," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 9(1), pages 17-29, May.
    2. Fat Codruta Maria & Dezsi Eva, 2011. "Exchange-Rates Forecasting: Exponential Smoothing Techniques And Arima Models," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 499-508, July.
    3. Bilgili, Faik, 2002. "VAR, ARIMA, Üstsel Düzleme, Karma ve İlave-Faktör Yöntemlerinin Özel Tüketim Harcamalarına ait Ex Post Öngörü Başarılarının Karşılaştırılması [A Comparison of Ex-Post Forecast Accuracies for VAR, A," MPRA Paper 75536, University Library of Munich, Germany, revised 2002.
    4. Hatice Erkekoglu & Aweng Peter Majok Garang & Adire Simon Deng, 2020. "Modeling and Forecasting USD/UGX Volatility through GARCH Family Models: Evidence from Gaussian, T and GED Distributions," International Journal of Economics and Financial Issues, Econjournals, vol. 10(2), pages 268-281.
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    More about this item

    Keywords

    Forecast Evaluation; ARIMA; Exponential Smoothing; VAR;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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