A Univariate Time Varying Analysis of Periodic ARMA Processes

Abstract

The standard approach for studying the periodic ARMA model with coefficients that vary over the seasons is to express it in a vector form. In this paper we introduce an alternative method which views the periodic formulation as a time varying univariate process and obviates the need for vector analysis. The specification, interpretation, and solution of a periodic ARMA process enable us to formulate a forecasting method which avoids recursion and allows us to obtain analytic expressions of the optimal predictors. Our results on periodic models are general, analogous to those for stationary specifications, and place the former on the same computational basis as the latter.

Keywords: covariance structure, homogeneous and particular solutions, optimal predictors, periodic ARMA models

JEL Classification: C22, C53, C58