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There are four basic types of movements for time series and are known as
Components of time series.
As stated earlier, the ups and downs in business activities are the
effects of cyclical variation. A business cycle showing these
oscillatory movements has to pass through four phases-prosperity,
recession, depression and recovery. In a business, these four phases
are completed by passing one to another in this order.
Irregular Component (I): The erratic or residual fluctuations in a time
series that exist after taking into account the systematic effects -- trend,
seasonal and cyclical. These variations occur in completely unpredictable
manner for short duration and non-repeating and also called accidental
variations. Irregular variation may be divided into two components:
Episodic fluctuations
Residual fluctuations.
Episodic variations
are unpredictable, but they can be identified. Major floods, hurricanes, or
strikes are examples of unpredictable events but it is possible to identify
the time period in which they happened.
Residual fluctuations: Unpredictable variation in a time series that cannot
be identified.
The two simplest models relating the observed value (Y ) of a time series
t
to the trend (T ), seasonal ( S ), and irregular ( I ) components are the
t t t
The additive components model works best when the time series being
analyzed has roughly the same variability throughout the length of the
series. That is, all the values of the series fall essentially within a band of
constant width centered on the trend.
The multiplicative components model works best when the variability of
the time series increases with the level. That is, the values of the series
spread out as the trend increases, and the set of observations has the
appearance of a megaphone or funnel.
1,000
Time Series with Constant Variability (Top) and a Time
Series with Variability Increasing with Level (Bottom)
900
Milk Production
800
700
600
800
are various methods to compute the trend.
700 Among them two well-known methods are
600
Monthly Sales
500
200
100
where
a=Ý −b t́
and
b=
n ∑ tY −∑Y ∑t
n ∑t 2 −¿ ¿ ¿
.
and
n
n(n+1)(2n+1)
∑ i 2= 6
i
Example 2: The table below shows the quarterly sales for Toys
International for the years 2001 through 2006. The sales are reported in
millions of dollars. Determine quarterly moving averages.
Year Quarter Sales Four-Quarter Centered
($ moving average Moving
millions)
Average
2001 Winter 6.7 * *
Spring 4.6 * *
8.500
Summer 10.0 8.4750
8.450
Fall 12.7 8.4500
8.450
2002 Winter 6.5 8.4250
8.400
Spring 4.6 8.5125
8.625
Summer 9.8 8.6750
8.725
Fall 13.6 8.7750
8.825
2003 Winter 6.9 8.9000
8.975
Spring 5.0 9.0375
9.100
Summer 10.4 9.1125
9.125
Fall 14.1 9.1875
9.250
2004 Winter 7.0 9.3000
9.350
Spring 5.5 9.4625
9.575
Summer 10.8 9.5875
9.600
Fall 15.0 9.6250
9.650
2005 Winter 7.1 9.6875
9.725
Spring 5.7 9.6625
9.600
Summer 11.1 9.7125
9.825
Fall 14.5 9.8875
9.950
2006 Winter 8.0 9.9875
10.025
Spring 6.2 10.0750
10.125
Summer 11.4 * *
Fall 14.9 * *
Sales (millions)
t = Year-2000
2001 1 125
2002 2 113
2003 3 189
2004 4 201
2005 5 206
2006 6 241
2007 7 230
2008 8 245
2009 9 271
2010 10 291
Total
Need:∑ t , ∑ t2 , ∑ tY ∧∑ Y