Box–Jenkins method: Difference between revisions

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{{Short description|Method to find best fit of a time-series model}}

In [[time series analysis]], the '''Box–Jenkins method''',<ref>{{cite book |lastlast1=Box |firstfirst1=George |last2=Jenkins |first2=Gwilym |year=1970 |title=Time Series Analysis: Forecasting and Control |url=https://archive.org/details/timeseriesanalys0000boxg |url-access=registration |___location=San Francisco |publisher=Holden-Day }}</ref> method, named after the [[statistician]]s [[George Box]] and [[Gwilym Jenkins]], applies autoregressive moving average [[Autoregressiveautoregressive moving average|ARMA]] (ARMA) or [[Autoregressiveautoregressive integrated moving average|ARIMA]] (ARIMA) models to find the best fit of a time-series model to past values of a [[time series]].

==Modeling approach==

The original model uses an iterative three-stage modeling approach:

#''Model identification and [[model selection]]'': making sure that the variables are [[stationary process|stationary]], identifying [[seasonality]] in the dependent series (seasonally differencing it if necessary), and using plots of the [[autocorrelation|autocorrelation (ACF)]] and [[partial autocorrelation|partial autocorrelation (PACF)]] functions of the dependent time series to decide which (if any) autoregressive or moving average component should be used in the model.

#''[[Parameter estimation]]'' using computation algorithms to arrive at coefficients that best fit the selected ARIMA model. The most common methods use [[maximum likelihood estimation]] or [[non-linear least-squares estimation]].

#''[[Statistical model validation|ModelStatistical model checking]]'' by testing whether the estimated model conforms to the specifications of a stationary univariate process. In particular, the residuals should be independent of each other and constant in mean and variance over time. (Plotting the mean and variance of residuals over time and performing a [[Ljung–Box test]] or plotting autocorrelation and partial autocorrelation of the residuals are helpful to identify misspecification.) If the estimation is inadequate, we have to return to step one and attempt to build a better model.

The data they used were from a gas furnace. These data are well known as the Box and Jenkins gas furnace data for benchmarking predictive models.

Commandeur & Koopman (2007, §10.4)<ref>{{cite book |lastlast1=Commandeur |firstfirst1=J. J. F. |last2=Koopman |first2=S. J. |year=2007 |title=Introduction to State Space Time Series Analysis |___location= |publisher=[[Oxford University Press]] |isbn= }}</ref> argue that the Box–Jenkins approach is fundamentally problematic. The problem arises because in "the economic and social fields, real series are never stationary however much differencing is done". Thus the investigator has to face the question: how close to stationary is close enough? As the authors note, "This is a hard question to answer". The authors further argue that rather than using Box–Jenkins, it is better to use state space methods, as stationarity of the time series is then not required.

==Box-JenkinsBox–Jenkins model identification==

===Stationarity and seasonality===

The first step in developing a Box–Jenkins model is to determine ifwhether the [[time series]] is [[Stationary process|stationary]] and ifwhether there is any significant [[seasonality]] that needs to be modelled.

====Detecting stationarity====

Stationarity can be assessed from a [[run sequence plot]]. The run sequence plot should show constant ___location and [[Scale (ratio)|scale]]. It can also be detected from an [[autocorrelation plot]]. Specifically, non-stationarity is often indicated by an autocorrelation plot with very slow decay. One can also utilize a [[Dickey-Fuller test]] or [[Augmented Dickey-Fuller test]].

====Detecting seasonality====

Seasonality (or periodicity) can usually be assessed from an autocorrelation plot, a [[seasonal subseries plot]], or a [[spectral plot]].

====Differencing to achieve stationarity====

Box and Jenkins recommend the differencing approach to achieve stationarity. However, [[curve fitting|fitting a curve]] and subtracting the fitted values from the original data can also be used in the context of Box–Jenkins models.

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===Identify ''p'' and ''q''===

Once stationarity and seasonality have been addressed, the next step is to identify the order (i.e. the ''p'' and ''q'') of the autoregressive and moving average terms. Different authors have different approaches for identifying ''p'' and ''q''. Brockwell and Davis (1991)<ref>{{cite book |lastlast1=Brockwell |firstfirst1=Peter J. |last2=Davis |first2=Richard A. |year=1991 |title=Time Series: Theory and Methods |publisher=Springer-Verlag |page=273|bibcode=1991tstm.book.....B }}</ref> state "our prime criterion for model selection [among ARMA(p,q) models] will be the AICc", i.e. the [[Akaike information criterion]] with correction. Other authors use the autocorrelation plot and the partial autocorrelation plot, described below.

====Autocorrelation and partial autocorrelation plots====

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Specifically, for an [[AR(1)]] process, the sample autocorrelation function should have an exponentially decreasing appearance. However, higher-order AR processes are often a mixture of exponentially decreasing and damped sinusoidal components.

For higher-order autoregressive processes, the sample autocorrelation needs to be supplemented with a partial autocorrelation plot. The partial autocorrelation of an AR(''p'') process becomes zero at lag ''p'' &nbsp;+ &nbsp;1 and greater, so we examine the sample partial autocorrelation function to see if there is evidence of a departure from zero. This is usually determined by placing a 95% [[confidence interval]] on the sample partial autocorrelation plot (most software programs that generate sample autocorrelation plots also plot this confidence interval). If the software program does not generate the confidence band, it is approximately <math>\pm 2/\sqrt{N}</math>, with ''N'' denoting the sample size.

The autocorrelation function of a [[moving average model|MA(''q'')]] process becomes zero at lag ''q'' &nbsp;+ &nbsp;1 and greater, so we examine the sample autocorrelation function to see where it essentially becomes zero. We do this by placing the 95% confidence interval for the sample autocorrelation function on the sample autocorrelation plot. Most software that can generate the autocorrelation plot can also generate this confidence interval.

The sample partial autocorrelation function is generally not helpful for identifying the order of the moving average process.

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| Autoregressive model. Use the partial autocorrelation plot to help identify the order.

|-

! One or more spikes, rest are essentially zero (or close to zero)

| [[Moving average model]], order identified by where plot becomes zero.

|-

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| Include seasonal autoregressive term.

|-

! No decay to zero (or it decays extremely slowly)

| Series is not stationary.

|}

Hyndman & Athanasopoulos suggest the following:<ref>{{cite webbook|last1=Hyndman|first1=Rob J|last2=Athanasopoulos|first2=George|title=Forecasting: principles and practice|url=https://www.otexts.org/fpp/8/5|accessdateaccess-date=18 May 2015}}</ref>

:The data may follow an ARIMA(''p'',''d'',0) model if the ACF and PACF plots of the differenced data show the following patterns:

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==Box–Jenkins model estimation==

Estimating the parameters for Box-JenkinsBox–Jenkins models involves numerically approximating the solutions of nonlinear equations. For this reason, it is common to use statistical software designed to handle to the approach - fortunately,– virtually all modern statistical packages feature this capability. The main approaches to fitting Box–Jenkins models are nonlinear least squares and maximum likelihood estimation. Maximum likelihood estimation is generally the preferred technique. The likelihood equations for the full Box–Jenkins model are complicated and are not included here. See (Brockwell and Davis, 1991) for the mathematical details.

==Box–Jenkins model diagnostics==

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If these assumptions are not satisfied, one needs to fit a more appropriate model. That is, go back to the model identification step and try to develop a better model. Hopefully the analysis of the residuals can provide some clues as to a more appropriate model.

One way to assess if the residuals from the Box–Jenkins model follow the assumptions is to generate [[statistical graphics]] (including an autocorrelation plot) of the residuals. One could also look at the value of the [[Ljung-BoxLjung–Box test|Box–Ljung statistic]].

==References==

{{Reflist}}

* {{cite book |last=Pankratz |first=Alan |year=1983 |title=Forecasting with Univariate Box–Jenkins Models: Concepts and Cases |___location=New York |publisher=John Wiley & Sons }}

==Further reading==

* {{citation | title= Comparison of Box–Jenkins and objective methods for determining the order of a non-seasonal ARMA model | author1-first= S. | author1-last= Beveridge | author2-first= C. | author2-last= Oickle | journal= [[Journal of Forecasting]] | year= 1994 | volume= 13 | issue= 5 | pages= 419–434 | doi= 10.1002/for.3980130502}}

* {{cite bookcitation |last=Pankratz |first=Alan |year=1983 |title=Forecasting with Univariate Box–Jenkins Models: Concepts and Cases |___locationpublisher=New York |publisher=[[John Wiley & Sons]] }}

==External links==

* [https://web.archive.org/web/20070318000551/http://statistik.mathematik.uni-wuerzburg.de/timeseries/ A First Course on Time Series Analysis] -– an open source book on time series analysis with SAS (Chapter 7)

* [http://www.itl.nist.gov/div898/handbook/pmc/section4/pmc445.htm Box–Jenkins models] in the Engineering Statistics Handbook of [[NIST]]

* [http://robjhyndman.com/papers/BoxJenkins.pdf Box-JenkinsBox–Jenkins modelling] by Rob J Hyndman

* [http://support.sas.com/resources/papers/proceedings13/454-2013.pdf The Box-JenkinsBox–Jenkins methodology for time series models] by Theresa Hoang Diem Ngo

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