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A study of outliers in the exponential smoothing approach to forecasting

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  • Koehler, Anne B.
  • Snyder, Ralph D.
  • Ord, J. Keith
  • Beaumont, Adrian

Abstract

Outliers in time series have the potential to affect parameter estimates and forecasts when using exponential smoothing. The aim of this study is to show the way in which important types of outliers can be incorporated into linear innovations state space models for exponential smoothing methods. The types of outliers include an additive outlier, a level shift, and a transitory change. The general innovations state space model and a special case which encompasses the common linear exponential smoothing methods are examined. A method for identifying outliers using innovations state space models is proposed. This method is investigated using both simulations and applications to real time series. The impact of an outlier’s location on the forecasts and the estimation of parameters is examined. The forecasts from outlier and basic non-outlier models are compared. An automatic method is found to result in improved forecasts for both the simulated and real data.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 28 (2012)
Issue (Month): 2 ()
Pages: 477-484

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Handle: RePEc:eee:intfor:v:28:y:2012:i:2:p:477-484

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Web page: http://www.elsevier.com/locate/ijforecast

Related research

Keywords: Exponential smoothing; Outliers; State space models; Time series; Intervention analysis;

References

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  1. Makridakis, Spyros & Hibon, Michele, 2000. "The M3-Competition: results, conclusions and implications," International Journal of Forecasting, Elsevier, vol. 16(4), pages 451-476.
  2. Hyndman, Rob J. & Koehler, Anne B., 2006. "Another look at measures of forecast accuracy," International Journal of Forecasting, Elsevier, vol. 22(4), pages 679-688.
  3. Ord, J.K. & Koehler, A. & Snyder, R.D., 1995. "Estimation and Prediction for a Class of Dynamic Nonlinear Statistical Models," Monash Econometrics and Business Statistics Working Papers 4/95, Monash University, Department of Econometrics and Business Statistics.
  4. Snyder, Ralph D & Ord, J Keith & Koehler, Anne B, 2001. "Prediction Intervals for ARIMA Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 217-25, April.
  5. James W. Taylor, 2004. "Smooth transition exponential smoothing," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(6), pages 385-404.
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