TIME SERIES STATIONARITY

AR, MA, ARMA

ARIMA BOX-JENKINS

Ulil Azmi, S.Si, M.Si

Lessons
 Introduction Basic Stationary Time Series
 The First-order Autoregressive Model AR(1)
 The First-order Moving Average MA(1)
 Autoregressive Moving Average ARMA(1,1)
 Autocorrelation Function (ACF)
 Partial Autocorrelation Function (PACF)
 Flow Diagram of Box-Jenkins methodology

Stationary and non-

stationary time series
1. Tentative IDENTIFICATION
 ACF dan PACF
(theoritical)

NO 2. Parameter ESTIMATION  Testing parameters

 White noise of residual

3. DIAGNOSTIC CHECKING  Normal Distribution
[ Is the model adequate? ] of residual

YES

4. FORECASTING  Forecast calculation

Stationary Filter
 Recall Stationary Series
◦ Constant mean
◦ Constant variance
◦ ACF independent of other variables

◦
Univariate Time Series
 A univariate time series refers to a time series
that consists of single observations recorded
over regular time interval.

 Example : Monthly returns data of stock

P , P , P ,..., P
1 2 3 n
White Noise
 Mean = 0 E ( t )  0
 Variance Constant
Autoregressive Model
 An AR model is one in which Z t depends only
on its own past value Z t 1 , Z t 2 , Z t 3 ,..., Z t  p

 Thus, Z t  f ( Z t 1 , Z t 2 , Z t 3 ,..., ut ) ut white noise

 AR(p) model is represented below :

Z t    1Z t 1  2 Z t 2  3 Z t 3  ...   p Z t  p  ut )
p
Z t     i Z t i  ut )
i 1
Moving Average (MA) Model
 A moving average model is one when Zt
depends only on the random error terms
ut 1 , ut 2 , ut 3 ,..., which follow a white noise
process.
Z t  f (ut 1 , ut 2 , ut 3 ,..., ut q )

MA(q) model is represented below :

Z t    ut  1ut 1   2ut 2   3ut 3  ...   q ut  q )
q
Z t    u t    i ut  i
i 1
Autoregressive Moving Average
Model (ARMA)
 There are the situation where the time series
may be represented as a mix of both AR and
MA models referred asa ARMA(p,q).

 ARMA(p, q) model is represented below :

Z t    1Z t 1  2 Z t  2  3 Z t 3  ...   p Z t  p  ut 
1ut 1   2ut  2   3ut 3  ...   q ut  q )
Theoretical ACF and PACF of ARIMA Models

Model ACF PACF

AR(p): autoregressive of order p Dies down Cuts off
after lag p
MA(q): moving average of order q Cuts off Dies down
after lag q

ARMA(p,q): mixed autoregressive- Dies down Dies down

moving average of order (p,q)
AR(p) or MA(q) Cuts off Cuts off after lag q after lag p
No order AR or MA No spike No spike (White Noise or
Random process)
Teoritically of The First Order of
Autoregressive or AR(1)
model
Zt =  + 1 Zt-1 + ut
Syarat kelayakan : |1| < 1 ; agar stationer
Ditulis dalam bentuk lain : ( 1- 1 B) Zt =  + ut
ACF PACF

   k, k 1  1  1 , untuk k  1
k 1 k 1 1  
kk  0 , untuk k  2
ACF & PACF AR(1) [Graphics illustration]

ACF PAC
F

ACF PAC
F
Contoh Simulasi Model AR(1)
[Graphics illustration]
 Theoretically of ACF and PACF of The Second-order
Autoregressive Model or AR(2)

The model
Zt =  + 1 Zt-1 + 2 Zt-2 + ut, where  = (112)
Syarat kelayakan : 1 + 2 < 1 ; 2  1 < 1 ; |2| < 1
Agar stationar : akar2 dari (1- 1 B - 2 B2) = 0 harus berada
diluar lingkaran satuan

ACF PACF




  1 , untuk k  1
11  1 , k  1
  k 1 
k
 
2  kk   22   2 , k  2
  , untuk k  2
 1 k 1 2 k  2   0, k  3
 33
Theoretically of ACF and PACF of The Second-order
Autoregressive Model or AR(2)

ACF PACF

ACF PACF
Theoretically of ACF and PACF of The Second-order
Autoregressive Model or AR(2)

ACF PACF

ACF PACF
Contoh Simulasi Model AR(2)
[Graphics illustration]
 Theoretically of ACF and PACF of The First-order
Moving Average Model or MA(1)

The model
Zt =  + ut – 1 ut-1 , where  = 
 Invertibility condition : –1 < 1 < 1

Theoretically of ACF Theoretically of PACF

  θ1
 , untuk k  1   k (1   2 )
  1  θ 2
k   1 1 untuk k  1
 1 kk 2(k  1)
1
 0 , untuk k  1 1
Theoretically of ACF and PACF of The First-order
Moving Average Model or MA(1) … [Graphics illustration]

ACF PAC
F

ACF PAC
F
Simulation example of ACF and PACF of The First-order
Moving Average Model or MA(1) … [Graphics illustration]
Theoretically of ACF and PACF of The Second-order
Moving Average Model or MA(2)

The model
Zt =  + ut – 1 ut-1 – 2 ut-2 , where  = 
 Invertibility condition : 1 + 2 < 1 ; 2  1 < 1 ; |2| < 1

Theoretically of ACF Theoretically of PACF

1 untuk k  0 Dies Down (according to a

 (  θ )(1   θ ) mixture of damped exponentials
 1 1 1 1 , untuk k  1 and/or damped sine waves)

   1  θ 2  2 θ
k 1 1 1

1  k  1 , untuk k  2


Theoretically of ACF and PACF of The Second-order
Moving Average Model or MA(2) … [Graphics illustration] … (1)

AC PAC
F F

AC PAC
F F
Theoretically of ACF and PACF of The Second-order
Moving Average Model or MA(2) … [Graphics illustration] … (2)

ACF PAC
F

ACF PAC
F
Simulation example of ACF and PACF of The Second-order
Moving Average Model or MA(2) … [Graphics illustration]
Theoretically of ACF and PACF of The Mixed
Autoregressive-Moving Average Model or ARMA(1,1)

The model
Zt =  + 1 Zt-1 + ut - 1 ut-1 , where  =  (11)
 Stationarity and Invertibility condition : |1| < 1 and |1| < 1

Theoretically of ACF Theoretically of PACF

1 untuk k  0 Dies Down (in fashion

 (  θ )(1   θ )
 1 1 1 1 , untuk k  1 dominated by damped
 exponentials decay)
   1  θ 2  2 θ
k 1 1 1

1  k  1 , untuk k  2


Theoretically of ACF and PACF of The Mixed Autoregressive-
Moving Average Model or ARMA(1,1) … [Graphics illustration] … (1)

ACF PAC
F

ACF PAC
F
Theoretically of ACF and PACF of The Mixed Autoregressive-
Moving Average Model or ARMA(1,1) … [Graphics illustration] … (2)

ACF PAC
F

ACF PAC
F
Theoretically of ACF and PACF of The Mixed Autoregressive-Moving
Average Model or ARMA(1,1) … [Graphics illustration] … (3)

ACF PAC
F

ACF PAC
F
Simulation example of ACF and PACF of The Mixed Autoregressive-
Moving Average Model or ARMA(1,1) … [Graphics illustration]
TES FORMATIF

Tentukan nilai ACF dan PACF dan kemudian plot

ACF  k untuk k  1,2,...,5 untuk masing-masing
model berikut

a.
Zt  0,5Zt 1  at

b. Z t  1,2Z t 1  0,8Z t  2  at

c. Z t  at  at 1  0,6at  2

d. Z t  0,7 Z t 1  at  0,4at 1
EXERCISE (DISCUSSION)
 PLOT DATA USING DATA W1-W3
 Identify Stationary, Model, ACF & PACF

W1 : Daily Average Number of Ttruck

Manufacturing Defects
W2 : Wolf Yearly Sunspot Nmber from 1700 to
2001
W3 : Blowfly Data