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Box Jenkins Models

The document discusses Box-Jenkins non-seasonal and seasonal models, focusing on ARMA and ARIMA methodologies for time series analysis. It outlines key concepts such as stationarity, identification tools, and model estimation, including the use of ACF, PACF, and information criteria for model selection. Additionally, it provides examples of SARMA and SARIMA models, emphasizing the importance of residual analysis and model comparison.

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vothidiemtrinh.rennes2
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24 views19 pages

Box Jenkins Models

The document discusses Box-Jenkins non-seasonal and seasonal models, focusing on ARMA and ARIMA methodologies for time series analysis. It outlines key concepts such as stationarity, identification tools, and model estimation, including the use of ACF, PACF, and information criteria for model selection. Additionally, it provides examples of SARMA and SARIMA models, emphasizing the importance of residual analysis and model comparison.

Uploaded by

vothidiemtrinh.rennes2
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Box-Jenkins non seasonal

and seasonal models


C. Tavera – Université Rennes

1
Technical tools
• Lag operator : 𝐿

• Lag polynomial : 𝑚

𝛾 𝐿 = 1 + 𝛾1 𝐿 + 𝛾2 𝐿2 + ⋯ + 𝛾𝑚 𝐿𝑚 = ෍ 𝛾𝑖 𝐿𝑖
𝑖=0
• Cumulated lag polynomial : 𝑚

𝛾 1 = 1 + 𝛾1 + 𝛾2 + ⋯ + 𝛾𝑚 = ෍ 𝛾𝑖
𝑖=0

Remark : 𝐿𝑐 = 𝑐 and 𝛾 𝐿 𝑐 = 𝛾 1 𝑐

• By heart : 1 − 𝛾𝐿 : first degree polynomial with 𝛾 < 1 ∞


1
= 1 + 𝛾𝐿 + 𝛾 2 𝐿2 + ⋯ = ෍ 𝛾 𝑖 𝐿𝑖
1 − 𝛾𝐿
𝑖=0

• Stationarity
Non seasonal ARMA models
Wold theorem
• 𝑦𝑡 𝑡=1,⋯,𝑇 non centered stationary
➢∃𝑢𝑡 ~𝐵𝐵 0 ; 𝜎𝑢2
➢∃𝛼 ∈ 𝑅
➢∃ 𝛿0 , 𝛿1 , ⋯ avec
▪ 𝛿𝑖 ∈ 𝑅 (pour 𝑖 = 0,1, ⋯)
▪ 𝛿0 = 1
▪ lim 𝛿𝑖 = 0 : short memory effect
𝑖→∞

Such that : 𝒚𝒕 = 𝜶 + 𝒖𝒕 + 𝜹𝟏 𝒖𝒕−𝟏 + 𝜹𝟐 𝒖𝒕−𝟐 + ⋯ = 𝜶 + σ∞


𝒊=𝟎 𝜹𝒊 𝒖𝒕−𝒊 = 𝜶 + 𝜹(𝑳)𝒖𝒕

with 𝛿 𝐿 = 1 + 𝛿1 𝐿 + 𝛿2 𝐿2 + ⋯

𝑦𝑡 = 𝛼 + 𝛿(𝐿)𝑢𝑡 : Wold MA(∞) model

• Remark : if 𝑦𝑡 𝑡=1,⋯,𝑇 stationary and centered : 𝛼 = 0 and 𝑦𝑡 = σ∞


𝑖=0 𝛿𝑖 𝑢𝑡−𝑖 = 𝛿(𝐿)𝑢𝑡
ARMA(p,q) model
𝜃 𝐿 𝜃 𝐿
• Fractional approximation : 𝛿(𝐿) ≈ so that 𝑦𝑡 = 𝛼 + 𝑢𝑡
𝜙 𝐿 𝜙 𝐿
or 𝜙 𝐿 𝑦𝑡 = 𝛼 ′ + 𝜃 𝐿 𝑢𝑡 with 𝛼′ = 𝛼 ∙𝜙 1 : ARMA(p,q) model
with 𝜙 𝐿 = 1 − 𝜙1 𝐿 − 𝜙2 𝐿2 − ⋯ − 𝜙𝑝 𝐿𝑝 and 𝜃 𝐿 = 1 + 𝜃1 𝐿 + 𝜃2 𝐿2 + ⋯ + 𝜃𝑞 𝐿𝑞
Moreover : in applied cases 𝑝 and 𝑞 are « small »

• Remark : centered ARMA(p,q) model : 𝜙 𝐿 𝑦𝑡 = 𝜃 𝐿 𝑢𝑡

• Key point 1 : 𝑦𝑡 is stationary : you need to check for this hypothesis


• Key point 2 : 𝑢𝑡 is a white noise process : you need to test for this hypothesis
ARIMA(p,d,q) model
• In case 𝑦𝑡 is not stationary, you have to make it stationary
• Many ways to do it but most of the time we use a stochastic difference of order 𝒅:

∆𝑑 𝑦𝑡 = (1 − 𝐿)𝑑 𝑦𝑡

• If ∆𝑑 𝑦𝑡 is stationary and can be modelled as an ARMA(p,q) model, we can say :


➢ ∆𝑑 𝑦𝑡 is modeled as as ARMA(p,q)
➢or 𝑦𝑡 is modeled as an ARIMA(p,d,q) model (I means « integrated » of order d)

• Important remark : with economic variables, we often have 𝑑 = 1 (ARIMA(p,1,q) model)

• With 𝑑 = 1 : ∆1 𝑦𝑡 = ∆𝑦𝑡 = 1 − 𝐿 𝑦𝑡 = 𝑦𝑡 − 𝑦𝑡−1 : variation of 𝑦 between two consecutive


periods.

𝑧𝑡 −𝑧𝑡−1
• Remark : if 𝑦 is a Log (for example 𝑦 = 𝐿𝑜𝑔(𝑧)), then ∆𝑦𝑡 = ∆𝐿𝑛(𝑧𝑡 ) ≈
𝑧𝑡−1
Identification tools for ARMA models
1) ACF and PACF : for « pure » AR or MA models
Définition
Confidence interval
Properties with pure AR ou MA models

ACF PACF Model


Falls abrutply towards 0 Falls progressively towards MA(q)
after the lag q zero
Falls progressively towards Falls abrutply towards 0 AR(p)
zero after the lag p

2) Information criterion (AIC is often used)


𝑆𝑆𝑅
𝐴𝐼𝐶 = 𝑇 ∙ 𝐿𝑜𝑔 +2∙ 𝑘+2
𝑇
3) Iterative procedure
The road to ARIMA or ARMA models (iterative procedure)
y stationary ?

Preliminary identification

Estimation of tentative
models and test

Are
Modification of the Common roots ?
residuals
"tentative models" Wold MA(∞) model
WN ?
NO YES
Compare the predictive capacity of
the models with WS forecasts

Selection of the most predictive


model
Seasonal ARMA models
SARMA model
Multiplicative seasonal ARMA models : SARMA(P,Q)(p,q)

Φ 𝐿𝑠 𝜙 𝐿 𝑦𝑡 = 𝛼 + Θ(𝐿𝑠 )𝜃(𝐿)𝑢𝑡

➢s : span of seasonality

➢Φ 𝐿𝑠 = 1 − Φ1 𝐿𝑠 1 − Φ2 𝐿𝑠 2 − ⋯ Φ𝑃 𝐿𝑠 𝑃
➢𝜙 𝐿 = 1 − 𝜙1 𝐿 − 𝜙2 𝐿2 + ⋯ − 𝜙𝑝 𝐿𝑝
➢Θ 𝐿𝑠 = 1 + Θ1 𝐿𝑠 1 + Θ2 𝐿𝑠 2 + ⋯ +Θ𝑄 𝐿𝑠 𝑄
➢𝜃 𝐿 = 1 + 𝜃1 𝐿 + 𝜃2 𝐿2 + ⋯ + 𝜃𝑞 𝐿𝑞

• Example : 𝑦𝑡 ~𝑆𝐴𝑅𝑀𝐴(2,1)(1,1) with a monthly (𝑠 = 12) and centered serie

1 − Φ1 𝐿12 − Φ2 𝐿24 1 − 𝜙1 𝐿 𝑦𝑡 = (1 + Θ1 𝐿12 )(1 + 𝜃1 𝐿)𝑢𝑡


SARIMA model
Multiplicative seasonal ARIMA models : SARIMA(P,D,Q)(p,d,q)

Φ 𝐿𝑠 𝜙 𝐿 (1 − 𝐿𝑠 )𝐷 (1 − 𝐿)𝑑 𝑦𝑡 = 𝛼 + Θ(𝐿𝑠 )𝜃(𝐿)𝑢𝑡

Φ 𝐿𝑠 𝜙 𝐿 ∆𝐷 𝑑 𝑑 𝑠
𝑠 ∆ (1 − 𝐿) 𝑦𝑡 = 𝛼 + Θ(𝐿 )𝜃(𝐿)𝑢𝑡

➢s : span of seasonality

➢Φ 𝐿𝑠 = 1 − Φ1 𝐿𝑠 1 − Φ2 𝐿𝑠 2 − ⋯ Φ𝑃 𝐿𝑠 𝑃
➢𝜙 𝐿 = 1 − 𝜙1 𝐿 − 𝜙2 𝐿2 + ⋯ − 𝜙𝑝 𝐿𝑝
➢Θ 𝐿𝑠 = 1 + Θ1 𝐿𝑠 1 + Θ2 𝐿𝑠 2 + ⋯ +Θ𝑄 𝐿𝑠 𝑄
➢𝜃 𝐿 = 1 + 𝜃1 𝐿 + 𝜃2 𝐿2 + ⋯ + 𝜃𝑞 𝐿𝑞

• Example : 𝑦𝑡 ~𝑆𝐴𝑅𝐼𝑀𝐴(2,1,1)(1,1,1) with a monthly (𝑠 = 12) and centered serie

1 − Φ1 𝐿12 − Φ2 𝐿24 1 − 𝜙1 𝐿 (1 − 𝐿12 )1 (1 − 𝐿)1 𝑦𝑡 = (1 + Θ1 𝐿12 )(1 + 𝜃1 𝐿)𝑢𝑡


SARIMA model
• ACF and PACF do not give clear indication for idetifying the model
• Alternative identification methods
➢Start with a simple tentative model (example airline model)
➢Calculate the ACF and PACF of estimated residuals
➢Try to modify the initial tentative model untill the residuals are WN
➢Once a final model is obtained, estimate alternative models by changing the lags by 1
unit. Calculate the associated value of an information criterion (for example AIC)
➢Select the « best » model
Example: with a final model SARIMA(2,1,0)12(3,0,0), we will then try :
SARIMA(2,1,0)12(3,0,0) SARIMA(1,1,0)12(3,0,0)
SARIMA(2,1,0)12(3,0,1) SARIMA(1,1,1)12(3,0,0)
SARIMA(2,1,0)12(3,0,2) SARIMA(1,1,2)12(3,0,0)
SARIMA(2,1,0)12(2,0,0) SARIMA(0,1,1)12(3,0,0)
SARIMA model : Example
• Monthly value of sales (index); food products, France (INSEE)
SARIMA model : Example
• Log of the serie (to make the variance stable)
SARIMA model : Example
• First difference, seasonal difference and first plus seasonal differences of the Log
SARIMA model : Example
• Retained model : SARIMA(2,1,1)12(3(lags 1 et 3), 1, 1) without constant term
SARIMA model : Example

Estimated residuals
Standardized residuals

Create 2
dummies
for the
outliers
SARIMA model : Example
SARIMA model : Example
Conclusion
Estimated residuals can be considered as
WN since :
➢ Non autocorrelation
➢ Normal distribution

The model is then compared top the model


obtanied with the automatic procedure of
the software : SARIMA(1,0,1)12(0,1,2)
▪ AIC -4.375
▪ SBC -4.248
▪ Hannan-Quinn -4.323

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