A state space model for exponential smoothing with group seasonality

Pim Ouwehand, Rob Hyndman (), Ton G. de Kok and Karel H. van Donselaar

No 7/07, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: We present an approach to improve forecast accuracy by simultaneously forecasting a group of products that exhibit similar seasonal demand patterns. Better seasonality estimates can be made by using information on all products in a group, and using these improved estimates when forecasting at the individual product level. This approach is called the group seasonal indices (GSI) approach, and is a generalization of the classical Holt-Winters procedure. This article describes an underlying state space model for this method and presents simulation results that show when it yields more accurate forecasts than Holt-Winters.

Keywords: Common seasonality; demand forecasting; exponential smoothing; Holt-Winters; state space model. (search for similar items in EconPapers)
JEL-codes: C53 C22 C52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
Date: 2007-06
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