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Incorporating a tracking signal into state space models for exponential smoothing

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journal contribution
posted on 05.06.2017, 06:03 authored by Snyder, Ralph D., Koehler, Anne B.
It is a common practice to complement a forecasting method such as simple exponential smoothing with a monitoring scheme to detect those situations where forecasts have failed to adapt to structural change. It will be suggested in this paper that the equations for simple exponential smoothing can be augmented by a common monitoring statistic to provide a method that automatically adapts to structural change without human intervention. It is shown that the resulting equations conform to those of damped trend corrected exponential smoothing. In a similar manner, exponential smoothing with drift, when augmented by the same monitoring statistic, produces equations that split the trend into long term and short term components.

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Year of first publication

2006

Series

Department of Econometrics and Business Statistics.

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