Estimated Varian e of Seasonally Adjusted Series

William P. Cleveland 

February 2002
Keywords:

seasonal adjustment, signal extra tion

Abstra t
For model-based seasonal adjustment, there are expli it formulas for obtaining the
varian e of the seasonal fa tors or the seasonally adjusted series. For series adjusted
with X-11 or X-12, varian e estimates are generally based on a linear approximation of
the seasonal adjustment pro edure. The work of Pfe ermann (1992) extends earlier
work by Wolter and Monseur. This study uses simulated series and omparisons
of alternative seasonal adjustment results for a few e onomi series to assess the
a ura y of varian e estimates. Pfe ermann's method gives good results when the
true seasonal is entered and follows a fairly smooth evolution from year to year.
Comparisons with formula-based omputations and estimates from the TRAMOSEATS programs by Maravall and Gomez show the latter an give good varian e
results for series adjusted with X-11 even if the seasonal fa tors themselves di er
from X-11 fa tors. 

Industrial

Output Se tion, Federal Reserve Board, Washington, DC 20551. e-mail w levelandfrb.gov.
The opinions expressed herein are the author's and do not ne essarily represent the Board of Governors of
the Federal Reserve System or its sta .

1

1 Introdu tion
The question of varian es for seasonally adjusted series has been addressed in a number of
ontexts. In the ase of model-based seasonal adjustment, there are expli it formulas whi h
an be applied. For series adjusted with X-11 or X-12, the dis ussion usually takes pla e
in the ontext of linear approximations to the X-11 estimator. The work of Pfe ermann
(1992) extends earlier varian e estimates advan ed by Wolter and Monseur. An assumption
that X-11 produ es an unbiased estimate of the true seasonal is required by Pfe ermann,
and the method should be used with settings spe i ed for auto orrelations identi ed in the
sampling error of the original series. This study uses simulated series and omparisons of
alternative seasonal adjustment results for a few e onomi series to assess the a ura y of
varian e estimates. Pfe erman's method gives good results only when the true seasonal
is entered and follows a fairly smooth evolution from year to year. Estimates from his
method are ompared with model-based estimates omputed dire tly with formulas and
estimates obtained from the TRAMO-SEATS programs by Maravall and Gomez.

2 Models for Simulated Series
We start with a standard, additive, three omponent model for a seasonal series,
=p +s +e

y

t

t

t

(1)

t

where y is the observed series indexed by month t, p is the trend or trend- y le omponent,
s is the seasonal omponent, and e is a noise omponent. The noise is assumed to
be un orrelated unless otherwise indi ated. Ea h of these omponents has an ARIMA
representation.
The trend omponent will be spe i ed using the lag operator B as
t

t

t

t

(1

B )(1

:8B )p

t

=a

(2)

t

whi h gives the highly auto orrelated trend usually asso iated with e onomi time series.
The sho ks a are iid.
Several models will produ e highly seasonal series. Three will be used to illustrate whi h
are most appropriate for studying varian es of seasonal estimators. Sin e equation 1 is
additive, all seasonal simulations are initialized using a seasonal pattern with mean zero.
Consider
t

(1

B 12 )s

t

=b

t

;

where b is white noise. Simulated series from this model have a seasonal with expanding
amplitude over time. The model
t

(1

:95B 12 )s

t

=b

(3)

t

2

is used to generate the rst set of series. It also gives strongly seasonal series, but they
approa h a nearly onstant amplitude. Simulations using this model an have a seasonal mean whi h di ers signi antly from zero. Thus, the seasonal generated may di er
appre iably from estimation results from X-11.
A losely related model is
f11 ( B )s = b ;
(4)
where f11 (B ) = 1 + B + B 2:: + B 11 or (1 B )f11 (B ) = (1 B 12 ). This model does not
have the near unit root at frequen y zero, so the average of the seasonal pattern over a
year remains near zero. In simulations, a value  = :995735 was used, so that 12 = .95.
Finally, the seasonal model
(1  2B 12 )f11 ( B )s = b
(5)
is like equation 4, but has smoother, more auto orrelated transitions in the seasonal from
year to year. A value of .6666 was used for  2. The measure sa f12 will indi ate the
auto orrelations at lag 12 of (s s 12 ).
The noise model in all ases will be simply
e =e
(6)
until we have need for more stru ture. Simulated series were generated with FAME
software using 3, 4, and 5 as the seasonal parts of time series models.
s

t

t

s

s

s

t

s

t

s

t

t

t

t

3 Series Des riptors
In order to hara terize the series realized using the di erent models and relate them to
ea h other, some basi measures are required. The average values of a seasonal pattern are
obtained from a 2 x 12 moving average lter, as in X-11. The mean of the absolute values
of the averaged seasonal patterns for a set of series will be alled s enter, the degree to
whi h the simulated seasonal patterns are entered on zero. Sin e X-11 routinely enters
its seasonal estimate, one annot expe t small deviations of the seasonal estimates from
the true seasonal unless the true seasonal is also entered. The amplitude of the simulated
seasonal will be measured by its varian e over a number of omplete years, svar. In order
to have omparable results from the three models, the trend model and the expe ted value
of svar are kept the same for all simulations. The rate at whi h the seasonal pattern
hanges is measured by the varian e of s s 12 , sdvar.
The fundamental measure of the a ura y of the seasonal estimate will be mean(s s^ )2 ,
its mean squared error alled here smse. The lower limit of this measure is a e ted by the
hara ter of seasonal estimators relative to the true seasonal. It will be smaller when the
estimator has a lose relationship to the data generation pro esses for the series omponents.
In pra ti e, the seasonal data generation pro ess an only be known to the extent that it is
onsistent with the observed series. Both the ontributions of the fundamental varian e in
t

t

t

3

t

the seasonal estimator and the underlying misspe i ation of the seasonal omponent in the
estimator are important aspe ts of the overall mean squared error. Whether using modelbased estimators or X-11, the estimator is some form of moving average of the observed
series. The estimates obtained may have smoother, more auto orrelated hanges in the
seasonal for a given month than were present in the true seasonal. This study suggests
smooth hanges in the true seasonal must be assumed for Pfe ermann's varian e estimates
to be a urate. The bias measure
sbias = mean(abs(mean(s
t

s^

it

i

it

)))

re e ts both whether the true seasonal and its estimate have the same average value,
and the ability of the estimator to follow the hanges in the true seasonal. The index i
runs over the number of simulated series. One would expe t the mean of (s s^ ), the
seasonal estimate errors for ea h t, to approa h zero for a higher number of simulations if
an estimator is apable of repli ating the true seasonal.
it

it

4 Varian es
Model-based analysis begins with the two- omponent de omposition
y

t

=n +s

;

(7)

=p +e :

(8)

t

t

where
n

t

t

t

The varian e of the seasonal omponent estimate of the seasonally adjusted series is
given in Cleveland and Tiao (1976) as  

1+
s

1 

1

n

(9)

:

The estimator for the seasonal omponent is
E [sjy ℄ =  

1+
s

n

1 

1 

1
n

(10)

y

In this study both the theoreti al value from 9 and the smse value obtained by applying 10 to the simulated series are presented, using omputations performed in SAS IML.
SAS omputations were done using matri es of dimension 11 years. The TRAMO-SEATS
programs may also be used to give a varian e estimate like 9. However, these programs
model the observed series dire tly and then ompute implied omponent models. This
4

pro ess will not generally lead to the same models used in the simulations. It turns out
that the varian e estimates from SEATS frequently agree quite well with those obtained
from 9 and with the smse omputed using seasonal fa tors from SEATS. This suggests that
a reasonable varian e estimate for a series seasonally adjusted with X-12 may be obtained
by using TRAMO-SEATS on the same series, even if the adjustments are not quite the
same.

5 Results
All three model spe i ations used equation 2 for the trend with 2 = .036. Models 1 - 3 in
Table 1 use the seasonal models in equations 3 to 5, respe tively. The noise varian es for 
2 were .1, .05, and .0064. Expanding the ovarian e generating fun tions for the seasonal
models gives a varian e of 1 for s in ea h ase. For the models 2a and 3a, e had varian e
0.3, while e had varian e 0.1 for models 2b and 3b. For model 3 , e had an MA(1)
model with varian e .3 and ovarian e .15. Sixteen series were simulated for ea h model
ondition. New noise terms were used for all three omponents in ea h simulation. While
sixteen is not enough to a hieve asymptoti results, the standard deviations of the measures
showed this to be enough to make the desired distin tions. The numbers in parentheses
are the standard deviations of the 16 mean square estimates (smse) obtained. Most of the
entries in the left olumn of Table 1 have been de ned. The entry \var mod" is the entral
value from equation 9, while \smse mod" refers to the results of equation 10 ompared
with the true seasonal. Similarly, \var SEATS" is the average of the varian e estimates
given by the SEATS program, and \smse SEATS" is the average mean squared error of the
seasonal estimates omputed by the TRAMO-SEATS programs. Series were simulated for
the period 1970 through 1999, and seasonal adjustment runs in X-12 and Tramo-SEATS
were from 1977 through 1996. Only the values from 1982 through 1993 were used for
mse omputations to orrespond with the model-based al ulations arried out in SAS and
eliminate end e e ts. Of ourse, varian es are larger at the end of a seasonally adjusted
series. Computations of varian e estimates using Pfe ermann's pro edure assumed a
orrelation at lag 1 for the sampling error. This would generally raise the estimate over
using lag 0 and this assumption might be used as a pre aution where the orrelations are
unknown.
a

b

t

t

t

t

5

Table 1: Simulation Results
Model 1 Model 2a Model 3a Model2b
s enter
.201
.011
.007
.011
sbias
.084
.061
.039
.055
svar
.899
1.007
.953
1.007
sdvar
.107
.109
.023
.109
sa f12
-.016
-.018
.545
-.018
var Pfef
.064
.063
.053
.031
(.011) (.009)
(.008)
(.003)
smse X-12 .166
.100
.060
.072
(.070) (.018)
(.019)
(.011)
var mod
.176
.081
.049
.048
smse mod
.158
.083
.053
.048
(.067) (.018)
(.019)
(.010)
var SEATS .100
.110
.088
.082
(.012) (.021)
(.016)
(.023)
smse SEATS .171
.098
.057
.073
(.071) (.021)
(.019)
(.022)

Model3b
.007
.030
.953
.023
.545
.021
(.003)
.032
(.009)
.027
.029
(.011)
.073
(.022)
.045
(.018)

Model 3
.008
.040
.948
.023
.545
.058
(.010)
.065
(.025)
.055
.059
(.023)
.084
(.016)
.090
(.054)

Notes:

s enter = mean(mean(abs(mave12(s )))); sbias = mean(abs(mean(s
svar = mean(var(s )); sdvar = mean(var(s
s 12 ))
sa f 12 = mean( or(s
s 12 ; s 12 s 24 ))
smse(^s ) = mean(mse(^s
s ))
t

it

i

i

t

it

i

it

i

it

it

t

i

i;t

it

i;t

i

it

s^

it

)))

i;t

i;t

it

As expe ted, the measure s enter is relatively large for Model 1, where the true seasonal
is not entered. The large smse values for the three estimates of the seasonal pattern
also re e t the not- entered true seasonal. Of ourse the varian e estimated by SEATS
under Model 1 is a small value like that of Pfe ermann, re e ting the entered seasonal
assumption by both. Note that the "var mod" al ulation from equation 9 is lose to the
a tual smse. More generally, the "smse mod" values from equation 10 using the optimal
lters are onsistently smallest and agree well with the theoreti al varian e from the SAS
al ulations, as they should.
The most important nding in this table is the relatively small varian e estimate by
Pfe ermann's method in Model 2. Only with the auto orrelated seasonal hanges of
Model 3 do his varian e estimates have good orresponden e to the smse of the X-12
method. Whether true seasonals in a tual e onomi series are more like those of model
2 or model 3 is a matter of opinion. The estimated seasonal varian e from Pfe ermann's
method for Model 3 with an MA1 error is quite good, responding well to the orrelated
error. The varian e estimates produ ed by SEATS are good for Model 2, but high for
models 3b and 3 . The true varian e of the seasonal estimate is likely to lie between
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P ermann's estimate and that of SEATS. Model 3b is lose to models whi h have been
advan ed as having estimators lose to the default linear X-11 estimator. The smse from
X-12 is smallest for this model and not far from the Pfe ermann varian e estimate.
This result may not be strong enough for a statisti al agen y using X-12 to publish
either the Pfe ermann or the SEATS varian e estimate as the varian e of the seasonally
adjusted series, but it gives the data analyst an idea of how sensitive de isions should be
to a parti ular seasonal adjustment.

6 Analysis of Sele ted Series
To get a feeling for the impli ations of estimated seasonal fa tor varian es for seasonally
adjusted e onomi series, ve aggregate series were analyzed, with the results in Table 2. As
measured by the variation in the seasonal ompared to the variation in the X-12 irregular,
the seasonal patterns range from strong to fairly mild. In general, the agen ies publishing
these series do not adjust them as aggregates but as a sum of adjusted omponents, so the
analyses here do not orrespond to the seasonal adjustment pro edures used. However,
the seasonally adjusted series obtained here using Tramo-SEATS and X-12 are as lose
to the published ones as they are to ea h other, giving some assuran e that the varian e
estimates are reasonable. In some situations the real fo us of attention is on monthly
growth rates or ratios. Varian es of log di eren es depend on the orrelation of adja ent
log level estimates. If this orrelation is .5, then the level and growth rate varian es are
the same. Results ontained in the output of the SEATS program suggest orrelations at
least this high. Entries in the table are 100 times the standard deviations of log measures.
They an be interpreted as one standard deviation of per ent error in level or (assuming .5
orrelation of adja ent errors) growth rate.
Estimates of the standard deviation of the seasonal fa tors from Pfe ermann's method
and from SEATS are given in the third and fourth rows of the table. They tra k ea h other
pretty well. For the CPI and M2 series, these deviations are relatively large ompared
with the standard deviation of the seasonal pattern. These series also have the most noise
in relation to the seasonal pattern. As an additional ben hmark, the root mean square
of the di eren es (RMSD) between the two estimated seasonal patterns for ea h series are
presented in row 5. These values ompare fairly losely with the standard deviations of the
fa tor estimates, though somewhat smaller for CPI and M2 where the seasonals have less
variation. To he k out the impa t on growth rates implied by these numbers, standard
deviations of month-to-month ratios of the seasonally adjusted series were omputed. If
these are large ompared to the standard deviations of the seasonal fa tor estimates, then
errors in the seasonal fa tors would not distort growth rates mu h. The ratios of the values
in the last row to those in the third row are about 3.5, ex ept a 4.5 for CPI. Using a model
where the varian e of s^ is a omponent of the varian e of the estimated seasonally adjusted
ratios, a ratio of 3.5 implies the orre t sign for the true growth rate about 95 per ent of
the time.
7

Table 2: Estimated Varian es for Sele ted Series
IP Retail CPI Labor M2
^
St. Dev s 1.50 7.91 0.15 1.07 0.29
^
St. Dev I .37 1.25 .10
.14 .17
St. Dev. Pfe .22
.64 .07
.08 .10
St. Dev. SEATS .27
.55 .08
.08 .13
RMSD .34
.84 .04
.07 .05
St. Dev. SAR .74 2.12 .32
.27 .36
Notes to the table:
IP = Industrial Produ tion index, Federal Reserve Board
Retail = Retail Sales, Commer e Department
CPI = Consumer Pri e Index (all urban, all items), Labor Department
Labor = Civilian Labor For e, Labor Department
M2 = M2 Index of Money Supply, Federal Reserve Board
St. Dev s^ = standard deviation of the estimated seasonal pattern in logs (amplitude of
the seasonal pattern)
^
St. Dev I = standard deviation of the X-12 irregular in logs
St. Dev. Pfe = seasonal fa tor standard deviation estimates from Pe erman's method,
per ent
St. Dev. SEATS = seasonal fa tor standard deviation estimates from the TRAMOSEATS program, per ent
RMSD = root mean square of the di eren e between the Tramo-SEATS and X-12
estimates of the seasonal fa tors
St. Dev. SAR = 100 times the standard deviation of the seasonally adjusted monthto-month ratios.

8

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