Random switching exponential smoothing and inventory forecasting
Giacomo Sbrana and
Andrea Silvestrini
No 971, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area
Abstract:
Exponential smoothing models are an important prediction tool in macroeconomics, finance and business. This paper presents the analytical forecasting properties of the random coefficient exponential smoothing model in the multiple source of error framework. The random coefficient state-space representation allows for switching between simple exponential smoothing and the local linear trend. Therefore it is possible to control, in a flexible manner, the random changing dynamic behaviour of the time series. The paper establishes the algebraic mapping between the state-space parameters and the implied reduced form ARIMA parameters. In addition, it shows that parametric mapping surmounts the difficulties that are likely to emerge in a direct estimatation of the random coefficient state-space model. Finally, it presents an empirical application comparing the forecast accuracy of the suggested model vis-�-vis other benchmark models, both in the ARIMA and in the Exponential Smoothing class. Using time series relative to wholesalers� inventories in the USA, the out-of-sample results show that the reduced form of the random coefficient exponential smoothing model tends to be superior to its competitors.
Keywords: exponential smoothing; ARIMA; inventory; forecasting. (search for similar items in EconPapers)
Date: 2014-07
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)
Downloads: (external link)
http://www.bancaditalia.it/pubblicazioni/temi-disc ... 0971/en_tema_971.pdf (application/pdf)
Related works:
Journal Article: Random switching exponential smoothing and inventory forecasting (2014) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_971_14
Access Statistics for this paper
More papers in Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().