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Exponential Smoothing and the Akaike Information Criterion

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  • Ralph D. Snyder
  • J. Keith Ord

Abstract

Using an innovations state space approach, it has been found that the Akaike information criterion (AIC) works slightly better, on average, than prediction validation on withheld data, for choosing between the various common methods of exponential smoothing for forecasting. There is, however, a puzzle. Should the count of the seed states be incorporated into the penalty term in the AIC formula? We examine arguments for and against this practice in an attempt to find an acceptable resolution of this question.

Suggested Citation

  • Ralph D. Snyder & J. Keith Ord, 2009. "Exponential Smoothing and the Akaike Information Criterion," Monash Econometrics and Business Statistics Working Papers 4/09, Monash University, Department of Econometrics and Business Statistics.
    • Handle: RePEc:msh:ebswps:2009-4
    as

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    File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2009/wp4-09.pdf
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    References listed on IDEAS

    as
    1. Everette S. Gardner, Jr. & Ed. Mckenzie, 1985. "Forecasting Trends in Time Series," Management Science, INFORMS, vol. 31(10), pages 1237-1246, October.
    2. Ralph D. Snyder & Grant R. Saligari, 1996. "Initialization Of The Kalman Filter With Partially Diffuse Initial Conditions," Journal of Time Series Analysis, Wiley Blackwell, vol. 17(4), pages 409-424, July.
    3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    4. Hyndman, Rob J. & Koehler, Anne B. & Snyder, Ralph D. & Grose, Simone, 2002. "A state space framework for automatic forecasting using exponential smoothing methods," International Journal of Forecasting, Elsevier, vol. 18(3), pages 439-454.
    5. Billah, Baki & King, Maxwell L. & Snyder, Ralph D. & Koehler, Anne B., 2006. "Exponential smoothing model selection for forecasting," International Journal of Forecasting, Elsevier, vol. 22(2), pages 239-247.
    6. Holt, Charles C., 2004. "Forecasting seasonals and trends by exponentially weighted moving averages," International Journal of Forecasting, Elsevier, vol. 20(1), pages 5-10.
    7. Feigin, Paul D. & Gould, Phillip & Martin, Gael M. & Snyder, Ralph D., 2008. "Feasible parameter regions for alternative discrete state space models," Statistics & Probability Letters, Elsevier, vol. 78(17), pages 2963-2970, December.
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    Cited by:

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    More about this item

    Keywords

    Exponential smoothing; forecasting; Akaike information criterion; innovations state space approach;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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