Bayesian structural time series

Bayesian structural time series (BSTS) model is a statistical technique used for feature selection, time
series forecasting, nowcasting, inferring causal impact and other applications. The model is designed to
work with time series data.

The model has also promising application in the field of analytical marketing. In particular, it can be used in
order to assess how much different marketing campaigns have contributed to the change in web search
volumes, product sales, brand popularity and other relevant indicators. Difference-in-differences models[1]
and interrupted time series designs[2] are alternatives to this approach. "In contrast to classical difference-in-
differences schemes, state-space models make it possible to (i) infer the temporal evolution of attributable
impact, (ii) incorporate empirical priors on the parameters in a fully Bayesian treatment, and (iii) flexibly
accommodate multiple sources of variation, including the time-varying influence of contemporaneous
covariates, i.e., synthetic controls."[1]

General model description

The model consists of three main components:

1. Kalman filter. The technique for time series decomposition. In this step, a researcher can
add different state variables: trend, seasonality, regression, and others.
2. Spike-and-slab method. In this step, the most important regression predictors are selected.
3. Bayesian model averaging. Combining the results and prediction calculation.

The model could be used to discover the causations with its counterfactual prediction and the observed
data.[1]

A possible drawback of the model can be its relatively complicated mathematical underpinning and difficult
implementation as a computer program. However, the programming language R has ready-to-use packages
for calculating the BSTS model,[3][4] which do not require strong mathematical background from a
researcher.

See also
Bayesian inference using Gibbs sampling
Correlation does not imply causation
Spike-and-slab regression

References
1. "Inferring causal impact using Bayesian structural time-series models" (http://research.googl
e.com/pubs/pub41854.html). research.google.com. Retrieved 2016-04-17.
2. "Interrupted Time-Series Design" (https://www.insightsassociation.org/issues-policies/glossa
ry/interrupted-time-series-design). Interrupted Time-Series Design. Insights Association.
Retrieved 21 March 2019.
3. "bsts" (https://cran.r-project.org/web/packages/bsts/bsts.pdf) (PDF).
 4. "CausalImpact" (https://google.github.io/CausalImpact/CausalImpact.html). google.github.io.
Retrieved 2016-04-17.

Further reading
Scott, S. L., & Varian, H. R. 2014a. Bayesian variable selection for nowcasting economic
time series (http://people.ischool.berkeley.edu/~hal/Papers/2012/fat.pdf). Economic Analysis
of the Digital Economy.
Scott, S. L., & Varian, H. R. 2014b. Predicting the present with bayesian structural time
series (http://people.ischool.berkeley.edu/~hal/Papers/2013/pred-present-with-bsts.pdf).
International Journal of Mathematical Modelling and Numerical Optimisation.
Varian, H. R. 2014. Big Data: New Tricks for Econometrics (http://people.ischool.berkeley.ed
u/~hal/Papers/2013/ml.pdf). Journal of Economic Perspectives
Brodersen, K. H., Gallusser, F., Koehler, J., Remy, N., & Scott, S. L. 2015. Inferring causal
impact using Bayesian structural time-series models (http://research.google.com/pubs/pub4
1854.html). The Annals of Applied Statistics.
R package "bsts" (https://cran.r-project.org/web/packages/bsts/bsts.pdf).
R package "CausalImpact" (https://google.github.io/CausalImpact/CausalImpact.html).
O’Hara, R. B., & Sillanpää, M. J. 2009. A review of Bayesian variable selection methods:
what, how and which (https://projecteuclid.org/euclid.ba/1340370391). Bayesian analysis.
Hoeting, J. A., Madigan, D., Raftery, A. E., & Volinsky, C. T. 1999. Bayesian model averaging:
a tutorial (https://projecteuclid.org/euclid.ss/1009212519). Statistical science.

Retrieved from "https://en.wikipedia.org/w/index.php?title=Bayesian_structural_time_series&oldid=1143054281"