Prediction with univariate time series models: The Iberia case
In this paper we model the monthly number of passengers flying with the Spanish airline IBERIA from January 1985 to December 1992 and predict future values of the series up to October 1994. This series is characterized by strong seasonal variations and by having an upward trend which has a rupture during 1990 with the slope changing to be negative. We compare observed values with predictions made by a deterministic components model, the Holt-Winters exponential smoothing filter, an ARIMA model and a structural time series model. As expected, we show that the deterministic components model is too rigid in the presence fo breaks in trends although surprisingly the within-sample fit is better than for any of the other models considered. With respect to Holt-Winters predictions, they fail because they are not able to acommodate outliers. Finally, ARIMA and structural models are shown to have very similar prediction performance, being very flexible to predict reasonably well when there are changes in trend and outliers.
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- Clements, M.P. & Hendry, D., 1992. "On the Limitations of Comparing Mean Square Forecast Errors," Economics Series Working Papers 99138, University of Oxford, Department of Economics.
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