ARIMA - Evaluation of the Model
- Parameter estimates
- The Time Series module reports approximate t values, computed from the parameter standard errors. If not significant, the respective parameter can in most cases be dropped from the model without affecting substantially the overall fit of the model.
- Other quality criteria
- Another straightforward and common measure of the reliability of the model is the accuracy of the forecasts it generates based on partial data, so that the forecasts can be compared with known (original) observations; this test is illustrated in the ARIMA Example. However, a good model should not only provide sufficiently accurate forecasts, it should also be parsimonious and produce statistically independent residuals that contain only noise and no systematic components (e.g., the correlogram of residuals should not reveal any serial dependencies). A good test of the model is (a) to plot the residuals and inspect them for any systematic trends, and (b) to examine the autocorrelogram of residuals (there should be no serial dependency between residuals).
- Analysis of residuals
- The major concern here is that the residuals are systematically distributed across the series (e.g., they could be negative in the first part of the series and approach zero in the second part) or that they contain some serial dependency which may suggest that the ARIMA model is inadequate. The analysis of ARIMA residuals constitutes an important test of the model. The estimation procedure assumes that the residual are not (auto-) correlated and that they are normally distributed. The Time Series module will automatically compute the residuals, and make them available for further analyses with all other methods available in this module; residuals can also be saved to a data file, together with the original series or its transformations.
- Limitations
- The ARIMA method is appropriate only for a time series that is stationary (i.e., its mean, variance, and autocorrelation should be approximately constant through time) and it is recommended that there are at least 50 observations in the input data. It is also assumed that the values of the estimated parameters are constant throughout the series.
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