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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 Pfeermann (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. Pfeermann'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 dier

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 Pfeermann

(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 Pfeermann,

and the method should be used with settings spe
ied for auto
orrelations identied 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. Pfeerman'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
ied 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 diers signi
antly from zero. Thus, the seasonal generated may dier

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 dierent 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 ae
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 Pfeermann'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 dened. 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 ee
ts. Of
ourse, varian
es are larger at the end of a seasonally adjusted

series. Computations of varian
e estimates using Pfeermann'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 Pfeermann, 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

Pfeermann'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 Pfeermann'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

6

**Permann'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 Pfeermann varian
e estimate.

This result may not be strong enough for a statisti
al agen
y using X-12 to publish

either the Pfeermann 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 dieren
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 Pfeermann'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 dieren
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 Peerman'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 dieren
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

REFERENCES

1. Bell, W.R., and Hillmer, S.C. (1983), "Modeling time series with
alendar variation,"

Journal of the Ameri
an Statisti
al Asso
iation, 78, 526-534.

2. Bell, W.R., and Hillmer, S.C. (1984), "Isses involved with seasonal adjustment of

e
onomi
time series,", Journal of Business and E
onomi
Statisti
s, 2, 291-349.

3. Box, G.E.P., and Jenkins, G.M. (1970), Time Series Analysis: Fore
asting and Control, Holden Day: San Fran
is
o.

4. Burman, J.P. (1980). "Seasonal adjustment by signal extra
tion, "Journal of the

Royal Statisti
al So
iety, Series A, 143, 321-337.

5. Burridge, P. and Wallis, K. F. (1985). "Cal
ualting the varian
e of seasonally adjusted

series," Journal of the Ameri
an Statisti
al Asso
iation, 80, 541-52.

6. Cleveland, W.P. and Grupe, M.R. (1983). "Modeling time series when
alendar

ee
ts are present," Applied Times Series Analysis of E
onomi
Data, ed. A. Zellner,

U.S. Department of Commer
e, Washington, D.C., 57-67.

7. Cleveland, W.P. and Tiao, G.C. (1976). "De
omposition of seasonal time series: a

model for the X-11 program," Journal of the Ameri
an Statisti
al Asso
iation, 71,

581-87.

8. Dagum, Estela Bee (1980). The X-11-ARIMA Seasonal Adjustment Method, Statisti
s Canada, Ottawa.

9. Gomez, V. and Maravall A. (1996). Programs Tramo and Seats, Ban
o de Espana,

Do
umento de Trabaho 9628.

10. Hillmer, S.C. and Tiao, G.C. (1982). "An ARIMA model-based approa
h to seasonal

adjustment," Journal of the Ameri
an Statisti
al Asso
iation, 77, 63-70.

11. Pfeermann, D. (1994). "A general method for estimating the varian
e of X-11

seasonally adjusted estimators," Journal of Time Series Analysis, 15, 85-116.

12. Shiskin, J., Young, Alan H., and Musgrave, J.C. (1967). "The X-11 variant of the

ensus method II seasonal adjustment program," Te
hni
al Paper 15, Bureau of the

Census, Washington, D.C.

13. Wolter, K. M. and Monsour, N. J. (1981)."On the problem of varian
e estimation

for a deseasonalized series," in Current Topi
s in Survey Sampling: An International

Symposium (eds. D. Krewski, R. Platek and J. N. K. Rao), New York: A
ademi

Press, 367-403.

9

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