There are different ways to formulate and implement ARIMA. The one discussed in Chapter 8 is the conventional way. The model, in that case, can be estimated directly, assuming that its initialisation happens at some point before the Big Bang: the conventional ARIMA assumes that there is no starting point of the model. We observe a specific piece of data from a population without any beginning or end. Obviously, this assumption is idealistic and does not necessarily agree with reality (imagine the series of infinitely lasting sales of Siemens S45 mobile phones. Do you even remember such a thing?).
But besides the conventional formulation, there are also state space forms of ARIMA, the most relevant to our topic being the one implemented in SSOE form (Chapter 11 of Hyndman et al., 2008). Svetunkov and Boylan (2020) adapted this state space model for supply chain forecasting, developing an order selection mechanism, sidestepping the hypothesis testing and focusing on information criteria. However, the main issue with that approach is that the resulting ARIMA model works very slow on the data with high frequencies (because the model was formulated based on Chapter 11 of Hyndman et al. (2008)). Luckily, an alternative SSOE state space formulation is introduced in Chapter 5.1. This model is already implemented in the
msarima() function of the
smooth package and was also used as the basis for the ADAM ARIMA.
In this chapter, we discuss the state space ADAM ARIMA for both pure additive and pure multiplicative cases, the conditional moments from the model and parameter space, then move to the distributional assumptions of the model (including the conditional distributions) and finish the chapter with the discussion of implications of ETS+ARIMA model. The latter has not been discussed in the literature and might make the model unidentifiable, so an analyst using the combination should be cautious.
• Hyndman, R.J., Koehler, A.B., Ord, J.K., Snyder, R.D., 2008. Forecasting with Exponential Smoothing.. Springer Berlin Heidelberg.
• Svetunkov, I., Boylan, J.E., 2020. State-space ARIMA for supply-chain forecasting. International Journal of Production Research. 58, 818–827. https://doi.org/10.1080/00207543.2019.1600764