A state space framework for automatic forecasting using exponential smoothing methods

Published on 16 July 2002 in Refereed papers

International Journal of Forecasting (2002), 18(3), 439-454.

Rob J. Hyndman1,Anne B. Koehler2,Ralph D. Snyder1 and Simone Grose1

  1. Department of Econometrics and Business Statistics, Monash University, VIC 3800, Australia.
  2. Department of Decision Sciences and Management Information Systems, Miami University, Oxford, OH 45056, USA.

Abstract: We provide a new approach to automatic business forecasting based on an extended range of exponential smoothing methods. Each method in our taxonomy of exponential smoothing methods can be shown to be equivalent to the forecasts obtained from a state space model. This allows (1) the easy calculation of the likelihood, the AIC and other model selection criteria; (2) the computation of prediction intervals for each method; and (3) random simulation from the underlying state space model. We demonstrate the methods by applying them to the data from the M-competition and the M3-competition.

Keywords: automatic forecasting, exponential smoothing, prediction intervals, state space models.

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