A non-Gaussian generalization of the Airline model for robust seasonal adjustment

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A non-Gaussian generalization of the Airline model for robust seasonal adjustment

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SIEM JAN KOOPMAN (Vrije Universiteit Amsterdam, The Netherlands)
JOHN A. D. ASTON

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Siem Jan Koopman

Abstract

In their seminal book Time Series Analysis: Forecasting and Control, Box and Jenkins (1976) introduce the Airline model, which is still routinely used for the modelling of economic seasonal time series. The Airline model is for a differenced time series (in levels and seasons) and constitutes a linear moving average of lagged Gaussian disturbances which depends on two coefficients and a fixed variance. In this paper a novel approach to seasonal adjustment is developed that is based on the Airline model and that accounts for outliers and breaks in time series. For this purpose we consider the canonical representation of the Airline model. It takes the model as a sum of trend, seasonal and irregular (unobserved) components which are uniquely identified as a result of the canonical decomposition. The resulting unobserved components time series model is extended by components that allow for outliers and breaks. When all components depend on Gaussian disturbances, the model can be cast in state space form and the Kalman filter can compute the exact log-likelihood function. Related filtering and smoothing algorithms can be used to compute minimum mean squared error estimates of the unobserved components. However, the outlier and break components typically rely on heavy-tailed densities such as the t or the mixture of normals. For this class of non-Gaussian models, Monte Carlo simulation techniques will be used for estimation, signal extraction and seasonal adjustment. This robust approach to seasonal adjustment allows outliers to be accounted for, while keeping the underlying structures that are currently used to aid reporting of economic time series data. Copyright © 2006 John Wiley & Sons, Ltd.

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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 25 (2006)
Issue (Month): 5 ()
Pages: 325-349
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Handle: RePEc:jof:jforec:v:25:y:2006:i:5:p:325-349

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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