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Forecasting Annual Totals From Monthly Data

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This ques­tion was posed on cross​val​i​dated​.com:

I have a monthly time series (for 2009–2012 non-​​stationary, with sea­son­al­ity). I can use ARIMA (or ETS) to obtain point and inter­val fore­casts for each month of 2013, but I am inter­ested in fore­cast­ing the total for the whole year, includ­ing pre­dic­tion inter­vals. Is there an easy way in R to obtain inter­val fore­casts for the total for 2013?

I’ve come across this prob­lem before in my con­sult­ing work, although I don’t think I’ve ever pub­lished my solu­tion. So here it is.

If x is your monthly time series, then you can con­struct annual totals as follows.

library(forecast)
y <- filter(x,rep(1,12), sides=1) # Total of last 12 months

To get the fore­casts of the annual totals:

fit <- auto.arima(y)
forecast(fit,h=12)

The last fore­cast is for the total of the next year.

Note that diff(y,lag=1) is the same as diff(x,lag=12). So, pro­vided D>1, if anARIMA(p,d,q)(P,D,Q)12 is appro­pri­ate for the x series, then an ARIMA(p,d+1,q)(P,D-1,Q)12 is appro­pri­ate for the y series. How­ever, auto.arima may not choose the equiv­a­lent mod­els because the fil­ter­ing and dif­fer­enc­ing will lead to dif­fer­ent num­bers of obser­va­tions. To take advan­tage of this result, and use all the avail­able data as effi­ciently as pos­si­ble, the fol­low­ing code is bet­ter, assum­ing d=D=1 is appro­pri­ate for x:

fit <- auto.arima(x,d=1,D=1)
fit$arma[c(6,7)] <- c(2,0)
fit <- Arima(y,model=fit)
forecast(fit,h=12)

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Published at DZone with permission of Rob J Hyndman, DZone MVB. See the original article here.

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