T IME S ERIES A NALYSIS

Slides prepared by Edi Ariyanto, Andalas University

2003 South-Western/Thomson Learning

T IMES S ERIES A NALYSIS

Time series represents a variable
observed across time
Components of a time series
Long term Movement (T)
Seasonal variation (S)
Cyclical variation (C)
Irregular activity (I)

L ONG TERM M OVEMENT (T)

Long term Movement refers to general

increases or decreases movement in long
term period. Long term movement is useful
to forecasting.

S EASONALITY (S)
Seasonal variation refers to periodic
increases or decreases that occur
within a calendar year in a time
series. The key is that these
movements in the time series follow
the same pattern each year.

Power consumption (millions kwh)

S EASONAL VARIATION
40
35
30
25
20
15
10
|
|
| |
|
| |
|
|
Jan Jul Dec Jan Jul Dec Jan Jul Dec
1999

Figure 16.5

2000

2001

S EASONAL VARIATION
Sales of Wildcat sailboats
(millions of dollars)

4
3
Linear trend

2
1
|
July
1998

Figure 16.6

|
July
1999

|
July
2000

|
July
2001

C YCLICAL VARIATION (C)

Cyclical variation describes a gradual
cyclical movement about the trend; it is
generally attributable to business and
economic conditions
The length of the cycle is the period of
that cycle and is measured from one
peak to the next

Cyclical activity

C YCLICAL VARIATION

Z1

P1

Z2

V1

P2

V2

Figure 16.7

T EXTILE E XAMPLE

Corporate taxes
(millions of dollars)

4.0
3.5

3.0
2.5
2.0
1.5
1.0
1

|
1975

Figure 16.8

|
1985

|
|
1995 2000

I RREGULAR A CTIVITY
Irregular activity consists of what is
left over after accounting for the
effect of any trend, seasonality, or
cyclical activity

C OMBINING C OMPONENTS
Additive Structure
yt = TRt + St + Ct + It
Multiplicative Structure
yt = TRt St Ct It

L INEAR T RENDS
Linear Trend

Y = a + bX
Yt

Yt

t
(a) Increasing trend

t
(b) decreasing trend

C URVILINEAR M ODELS
Yt

Yt

t
b2 < 0
(a)

Figure 16.4

t
b2< 0
(b)

C URVILINEAR M ODELS
Yt

Yt

t
b2 > 0
(c)

Figure 16.4

t
b2 > 0
(d)

M EASURING T REND
Linear Trend
t

T(T + 1)
= 1 + 2 + ... + T =
2

T(T + 1)(2T + 1)
t2 = 1 + 4 + ... + T2 =
6
t
T+1
t=
=
T
2

12B - 6(T + 1)A

b1 =
T(T2 - 1)

T+1
A
b0 =
- b1
2
T

USING

|
2001
(t = 8)

1995
(t = 2)

12

Year

Figure 16.9

C ODED D ATA

Yt

1994
(t = 1)

Number of employees
(thousands)

T REND L INE

USING

y| t =| TRt = b0 +t b1t
2001
(t = 8)

1995
(t = 2)

12

Year

Figure 16.9

C ODED D ATA

Yt

1994
(t = 1)

Number of employees
(thousands)

T REND L INE

E XCEL S OLUTION

Figure 16.10

Q UADRATIC T REND

Figure 16.11

I LLUSTRATION OF Q UADRATIC
T REND L INES
Yt

Yt

b1
t=2b2
A

Figure 16.12

Time (t)

b1
t=2b2
B

Time (t)

M EASURING C YCLICAL A CTIVITY

yt = TRt Ct It
yt
Ct ^
yt

C OMPLETE C YCLE
Yt
Trend

Ct > 1
Ct < 1
1 complete cycle
Time

Figure 16.13

T REND

Table 16.1

AND

yt

1
2
3
4
5
6
7
8

1.1
2.4
4.6
5.4
5.9
8.0
9.7
11.2

C YCLICAL A CTIVITY
^

yt

1.125
2.529
3.933
5.337
6.741
8.145
9.549
10.953

yt
Ct ^
yt
.978
.949
1.169
1.012
.875
.982
1.016
1.022

C YCLICAL A CTIVITY
Number of employees (thousands)

Yt

Figure 16.14

11.0
10.0
9.0
8.0
7.0

Actual yt
yt = -.279 + 1.404t
(trend line)

6.0
5.0
4.0
3.0
2.0
1.0
|
|
|
|
|
|
|
|
1994 1995 1996 1997 1998 1999 2000 2001

C YCLICAL C OMPONENTS
Ct
1.15
1.10
1.05
Start

End

1.00
.95

.90
|
|
|
|
|
|
|
|
1 2 3 4 5 6 7 8
1994
1996
1998
2000

Figure 16.15

A DDITIVE S EASONAL VARIATION

Yt

Trend
100 units

2000

Units sold

1500

100 units
Actual time series

1000
100 units
500

|
Winter
1999

Figure 16.16

|
Winter
2000

|
Winter
2001

Sales (tens of thousands of dollars)

J ETSKI S ALES
Yt
700
600

TRt = 100 + 20t

500
400
300
200

Estimated sales using

trend and seasonality

100
|
1

Figure 16.17

| |
2 3

| |
4 5

|
6

| | | | | | | | | | | | | |
7 8 9 10 11 12 13 14 15 16 17 18 19 20

H EAT P UMP S ALES

Yt
250 units

2000

Units sold

1500

Trend

180 units

1000

Actual time series

100 units

500

|
Winter
1999

Figure 16.18

|
Winter
2000

|
Winter
2001

Sales (tens of thousands of dollars)

M ULTIPLICATIVE

J ETSKI S ALES S EASON VARIATION

Yt
700
600
TRt = 100 + 20t
500
400
300
200
Estimated sales using
trend and seasonality

100
|
1

Figure 16.19

| |
2 3

| |
4 5

|
6

| | | | | | | | | | | | | |
7 8 9 10 11 12 13 14 15 16 17 18 19 20

F OUR S TEP P ROCEDURE FOR

D ECOMPOSITION
1. Determine a seasonal index, St, for
each time period
2. Deseasonalize the data, dt = TRt Ct It
3. Determine the trend component, TRt
4. Determine the cyclical component, Ct

C ENTERED M OVING AVERAGES

Time
1990

1991

1992

Table 16.2

Quarter
1
2
3
4
1
2
3
4
1.
..

t
1
2
3
4
5
6
7
8
9.
..

yt
85
41
92
45
90
43
95
47
92
..
.

Moving Totals
(1) 263
(2) 268
(3) 270
and so on

S ALES D ATA

Year
1998
1999
2000
2001

Table 16.3

FOR

V IDEO -C OMP

Quarter 1 Quarter 2 Quarter 3 Quarter 4

20
12
47
60
40
32
65
76
56
50
85
100
75
70
101
123

M OVING AVERAGES FOR V IDEO -C OMP

Year Quarter
1998

1999

2000

2001

Table 16.3

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4

yt

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

20
12
47
60
40
32
65
76
56
50
85
100
75
70
101
123

Moving
Total

139
159
179
197
213
229
247
267
291
310
330
346
369

Centered
Moving
Average

37.25
42.25
47.00
51.25
55.25
59.20
64.25
69.75
75.13
80.00
84.50
89.38

Ratio to
Moving
Average

1.26
1.42
.85
.62
1.18
1.28
.87
.72
1.13
1.25
.89
.78

S MOOTHING A T IME S ERIES

Yt

Sales (number of units)

120
100
80
60
Moving averages
(no seasonality)

40
20

| | | | | | | | | | | | | | | |
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
1998
1999
2000
2001
Quarters by year
Figure 16.20

R ATIOS FOR E ACH Q UARTER

Quarter 1

Total
Average

Table 16.5

.85
.87
.89
2.61
0.870

Quarter 2

.62
.72
.78
2.12
0.707

Quarter 3
1.26
1.18
1.13

3.57
1.190

Quarter 4
1.42
1.28
1.25

3.95
1.317

D ESEASONALIZING
D ATA Year t
Y

1998

1999

2000

2001

Table 16.6

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4

20
12
47
60
40
32
65
76
56
50
85
100
75
70
101
123

Deseasonalized
Values
Seasonal
Yt
Index (St)
dt =
St
.852
.692
1.166
1.290
.852
.692
1.166
1.290
.852
.692
1.166
1.290
.852
.692
1.166
1.290

23.47
17.34
40.31
46.51
46.95
46.24
55.75
58.91
65.73
72.25
72.90
77.52
88.03
101.16
86.62
95.35

TOTAL U.S. R ETAIL T RADE

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

Table 16.7

1997
134.738
130.255
148.497
145.703
156.603
150.915
153.200
156.782
149.407
157.523
161.925
203.117

1998
139.935
135.538
151.118
155.820
162.797
159.701
161.541
162.369
155.747
164.528
169.914
215.590

1999
146.613
145.121
165.736
166.011
173.496
171.286
172.364
174.788
169.809
174.740
185.347
238.452

2000
158.691
164.725
183.875
178.776
190.753
187.868
182.891
191.647
183.229
186.550
198.706
243.255

S UMMARY OF R ATIOS
Month (Period)
Jan
1997
1998
1999
2000
Average

Table 16.9

0.888
0.878
0.871
0.879

Feb
0.857
0.864
0.899
0.837

Mar
0.952
0.981
0.996
0.977

Apr

May Jun

Jul

Aug Sep

Oct

0.979
0.976
0.963
0.973

0.993 1.013 0.964 1.013

1.018 0.994 1.000 1.001 0.954 1.002
1.014 0.992 0.990 0.996 0.959 0.980
1.022 1.003
1.018 0.996 0.994 1.004 0.959 0.998

Nov Dec
1.036 1.295
1.029 1.299
1.032 1.317
1.033 1.304

D ESEASONALIZED D ATA
Deseasonalized Values (dt)

200
190
180
170

160

150

140 |
0

|
10

|
20
Time (t)

Figure 16.21

|
30

|
40

|
50

C YCLICAL C OMPONENTS
t

dt

dt

dt
(= Ct It)
d^t

1
2
3
4
5
6
..
.

153.349
149.238
152.165
149.871
153.899
151.602
..
.

146.470 - .934(1) = 146.979

146.470 - .934(2) = 147.913
146.470 + .934(3) = 148.847
146.470 + .934(4) = 149.782
146.470 + .934(5) = 150.716
146.470 + .934(6) = 151.650
..
.

1.0433
1.0090
1.0223
1.0006
1.0211
0.9997
..
.

Table 16.12

3-Month
Moving
Average (Ct)

1.025
1.011
1.015
1.007
1.010
..
.

Cyclical Components

P LOT

OF

1.03
1.02
1.01
1.00
0.99

0.98
0.97 |

|
10

0
Month
Year

Figure 16.22

C YCLICAL A CTIVITY

Feb
1997

|
20
Jan
1998

|
30
Jan
1999

|
40
Jan
2000

|
50

E XCEL P LOTS

Figure 16.23