Fast Forecast Reconciliation Using Linear Models

Mahsa Ashouri (), Rob Hyndman and Galit Shmueli ()

No 29/19, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: Forecasting hierarchical or grouped time series usually involves two steps: computing base forecasts and reconciling the forecasts. Base forecasts can be computed by popular time series forecasting methods such as Exponential Smoothing (ETS) and Autoregressive Integrated Moving Average (ARIMA) models. The reconciliation step is a linear process that adjusts the base forecasts to ensure they are coherent. However using ETS or ARIMA for base forecasts can be computationally challenging when there are a large number of series to forecast, as each model must be numerically optimized for each series. We propose a linear model that avoids this computational problem and handles the forecasting and reconciliation in a single step. The proposed method is very flexible in incorporating external data, handling missing values and model selection. We illustrate our approach using two datasets: monthly Australian domestic tourism and daily Wikipedia pageviews. We compare our approach to reconciliation using ETS and ARIMA, and show that our approach is much faster while providing similar levels of forecast accuracy.

Keywords: hierarchical forecasting; grouped forecasting; reconciling forecast; linear regression. (search for similar items in EconPapers)
JEL-codes: C10 C14 C22 (search for similar items in EconPapers)
Pages: 24
Date: 2019
New Economics Papers: this item is included in nep-ets, nep-for and nep-ore
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