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A New Taxonomy for Vector Exponential Smoothing and Its Application to Seasonal Time Series

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Published
<mark>Journal publication date</mark>1/02/2023
<mark>Journal</mark>European Journal of Operational Research
Issue number3
Volume304
Number of pages17
Pages (from-to)964-980
Publication StatusPublished
Early online date4/05/22
<mark>Original language</mark>English

Abstract

In short-term demand forecasting, it is often difficult to estimate seasonality accurately, owing to short data histories. However, companies usually have multiple products with similar seasonal demand patterns. A possible solution in this case is to use the components of several time series from a homogeneous family, thus estimating seasonal coefficients based on cross-sectional information. Motivated by this practical problem, we propose a new taxonomy of Parameters, Initial States and Components (PIC), which exploits homogeneous features of time series. We then apply this framework to vector exponential smoothing. We develop a model selection mechanism based on information criteria to select the appropriate PIC restrictions. We then conduct a simulation experiment and empirical analysis on retail data in order to assess the performance of point forecasts and prediction intervals of the models within this framework.