Monitoring Processes with Changing Variances

John Ord, Rob Hyndman, Anne B. Koehler and Ralph D. Snyder ()

No 4/08, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: Statistical process control (SPC) has evolved beyond its classical applications in manufacturing to monitoring economic and social phenomena. This extension requires consideration of autocorrelated and possibly non-stationary time series. Less attention has been paid to the possibility that the variance of the process may also change over time. In this paper we use the innovations state space modeling framework to develop conditionally heteroscedastic models. We provide examples to show that the incorrect use of homoscedastic models may lead to erroneous decisions about the nature of the process. The framework is extended to include counts data, when we also introduce a new type of chart, the P-value chart, to accommodate the changes in distributional form from one period to the next.

Keywords: Control charts; count data; GARCH; heteroscedasticity; innovations; state space; statistical process control (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Monitoring processes with changing variances (2009)
Working Paper: Monitoring Processes with Changing Variances (2008)
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