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<!DOCTYPE html>
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<title>Forecasting-2---TV-Regression.utf8</title>
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.hheader[<a href="index.html"><svg style="height:0.8em;top:.04em;position:relative;fill:steelblue;" viewBox="0 0 576 512"><path d="M280.37 148.26L96 300.11V464a16 16 0 0 0 16 16l112.06-.29a16 16 0 0 0 15.92-16V368a16 16 0 0 1 16-16h64a16 16 0 0 1 16 16v95.64a16 16 0 0 0 16 16.05L464 480a16 16 0 0 0 16-16V300L295.67 148.26a12.19 12.19 0 0 0-15.3 0zM571.6 251.47L488 182.56V44.05a12 12 0 0 0-12-12h-56a12 12 0 0 0-12 12v72.61L318.47 43a48 48 0 0 0-61 0L4.34 251.47a12 12 0 0 0-1.6 16.9l25.5 31A12 12 0 0 0 45.15 301l235.22-193.74a12.19 12.19 0 0 1 15.3 0L530.9 301a12 12 0 0 0 16.9-1.6l25.5-31a12 12 0 0 0-1.7-16.93z"/></svg></a>]
---
class: center, middle, inverse
# Forecasting Time Series
## Time-varying Regression
.futnote[Eli Holmes, UW SAFS]
.citation[[email protected]]
---
## Time-varying regression
Time-varying regression is simply a linear regression where time is the explanatory variable:
`$$log(catch) = \alpha + \beta t + \beta_2 t^2 + \dots + e_t$$`
The error term ( `\(e_t\)` ) was treated as an independent Normal error ( `\(\sim N(0, \sigma)\)` ) in Stergiou and Christou (1996). If that is not a reasonable assumption, then it is simple to fit an autocorrelated error model or non-Gausian error model in R.
---
Stergiou and Christou (1996) fit time-varying regressions to the 1964-1987 data and show the results in Table 4.
---
The first step is to determine how many polynomials of `\(t\)` to include in your model.
<img src="Forecasting-2---TV-Regression_files/figure-html/poly.plot-1.png" style="display: block; margin: auto;" />
---
Here is how to fit a linear regression to the anchovy landings with a 4th-order polynomial for time. We are fitting this model:
`$$log(Anchovy) = \alpha + \beta t + \beta_2 t^2 + \beta_3 t^3 + \beta_4 t^4 + e_t$$`
```r
landings$t = landings$Year-1963
model <- lm(log.metric.tons ~ poly(t,4),
data=landings, subset=Species=="Anchovy"&Year<=1987)
```
---
They do not say how they choose the polynomial order to include. We will look at the fit and keep the significant polynomials.
```r
summary(model)
```
```
##
## Call:
## lm(formula = log.metric.tons ~ poly(t, 4), data = landings, subset = Species ==
## "Anchovy" & Year <= 1987)
##
## Residuals:
## Min 1Q Median 3Q Max
## -0.26951 -0.09922 -0.01018 0.11777 0.20006
##
## Coefficients:
## Estimate Std. Error t value Pr(>|t|)
## (Intercept) 9.17747 0.03541 259.213 < 2e-16 ***
## poly(t, 4)1 6.06211 0.55180 10.986 1.13e-09 ***
## poly(t, 4)2 1.77153 0.59015 3.002 0.00733 **
## poly(t, 4)3 0.68734 0.57016 1.206 0.24280
## poly(t, 4)4 -0.49989 0.51403 -0.972 0.34302
## ---
## Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
##
## Residual standard error: 0.1458 on 19 degrees of freedom
## Multiple R-squared: 0.9143, Adjusted R-squared: 0.8962
## F-statistic: 50.65 on 4 and 19 DF, p-value: 7.096e-10
```
---
This suggests that we keep only the 1st polynomial, i.e. a linear relationship with time.
```r
dat = subset(landings, Species=="Anchovy" & Year <= 1987)
model <- lm(log.metric.tons ~ t, data=dat)
```
The coefficients and adjusted R2 are similar to that shown in Table 4.
```r
c(coef(model), summary(model)$adj.r.squared)
```
```
## (Intercept) t
## 8.36143085 0.05818942 0.81856644
```
---
We want to test if our residuals are independent. We can do this with the Ljung-Box test as Stergio and Christou (1995) do. For the Ljung-Box test
* Null hypothesis is that the data are independent
* Alternate hypothesis is that the data are serially correlated
Example:
```r
Box.test(rnorm(100), type="Ljung-Box")
```
```
##
## Box-Ljung test
##
## data: rnorm(100)
## X-squared = 1.5299, df = 1, p-value = 0.2161
```
The null hypothesis is not rejected. These are not serially correlated.
---
Stergio and Christou appear to use a lag of 14 for the test (this is a bit large for 24 data points). The degrees of freedom is lag minus the number of estimated parameters in the model. So for the Anchovy data, `\(df = 14 - 2\)`.
```r
x <- resid(model)
Box.test(x, lag = 14, type = "Ljung-Box", fitdf=2)
```
```
##
## Box-Ljung test
##
## data: x
## X-squared = 27.18, df = 12, p-value = 0.007279
```
Compare to the values in the far right column in Table 4. The null hypothesis of independence is rejected.
---
For the sardine (bottom row in Table 4), Stergio and Christou fit a 4th order polynomial. There are two approaches you can take to fitting n-order polynomials. The first is to use the `poly()` function. This creates orthogonal covariates for your polynomial.
What does that mean? Let's say you want to fit a model with a 2nd order polynomial of `\(t\)`. It has `\(t\)` and `\(t^2\)`, but using these are highly correlated. They also have different means and different variances, which makes it hard to compare the estimated effect sizes. The `poly()` function creates covariates with mean and covariance or zero and identical variances.
```r
T1 = 1:24; T2=T1^2
c(mean(T1),mean(T2),cov(T1, T2))
```
```
## [1] 12.5000 204.1667 1250.0000
```
```r
T1 = poly(T1,2)[,1]; T2=poly(T1,2)[,2]
c(mean(T1),mean(T2),cov(T1, T2))
```
```
## [1] 4.921826e-18 2.674139e-17 -4.949619e-20
```
---
With `poly()`, a 4th order time-varying regression model is fit to the sardine data as:
```r
dat = subset(landings, Species=="Sardine" & Year <= 1987)
model <- lm(log.metric.tons ~ poly(t,4), data=dat)
```
This indicates support for the 2nd, 3rd, and 4th orders but not the 1st (linear) part.
---
```r
summary(model)
```
```
##
## Call:
## lm(formula = log.metric.tons ~ poly(t, 4), data = dat)
##
## Residuals:
## Min 1Q Median 3Q Max
## -0.115300 -0.053090 -0.008895 0.041783 0.165885
##
## Coefficients:
## Estimate Std. Error t value Pr(>|t|)
## (Intercept) 9.31524 0.01717 542.470 < 2e-16 ***
## poly(t, 4)1 0.08314 0.08412 0.988 0.335453
## poly(t, 4)2 -0.18809 0.08412 -2.236 0.037559 *
## poly(t, 4)3 -0.35504 0.08412 -4.220 0.000463 ***
## poly(t, 4)4 0.25674 0.08412 3.052 0.006562 **
## ---
## Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
##
## Residual standard error: 0.08412 on 19 degrees of freedom
## Multiple R-squared: 0.6353, Adjusted R-squared: 0.5586
## F-statistic: 8.275 on 4 and 19 DF, p-value: 0.0004846
```
---
However, Stergiou and Christou used a raw polynomial model using `\(t\)`, `\(t^2\)`, `\(t^3\)` and `\(t^4\)` as the covariates. We can fit this model as:
```r
dat = subset(landings, Species=="Sardine" & Year <= 1987)
model <- lm(log.metric.tons ~ t + I(t^2) + I(t^3) + I(t^4), data=dat)
```
The coefficients and adjusted R2 are similar to that shown in Table 4.
```r
c(coef(model), summary(model)$adj.r.squared)
```
```
## (Intercept) t I(t^2) I(t^3) I(t^4)
## 9.672783e+00 -2.443273e-01 3.738773e-02 -1.983588e-03 3.405533e-05
##
## 5.585532e-01
```
---
The test for autocorrelation of the residuals is
```r
x <- resid(model)
Box.test(x, lag = 14, type = "Ljung-Box", fitdf=5)
```
```
##
## Box-Ljung test
##
## data: x
## X-squared = 32.317, df = 9, p-value = 0.0001755
```
`fitdf` specifies the number of parameters estimated by the model. In this case it is 5, intercept and 4 coefficients.
The p-value is less than 0.05 indicating that the residuals are temporally correlated.
---
Although Breusch-Godfrey test is more standard for regression residuals. The forecast package has the `checkresiduals()` function which will run this test and some diagnostic plots.
```r
library(forecast)
checkresiduals(model)
```
<!-- -->
```
##
## Breusch-Godfrey test for serial correlation of order up to 8
##
## data: Residuals
## LM test = 14.6, df = 8, p-value = 0.06741
```
---
class: center, middle, inverse
# Summary
---
## Why use time-varying regression?
* It looks there is a simple time relationship. If a high-order polynomial is required, that is a bad sign.
* Easy and fast
* Easy to explain
* You are only forecasting a few years ahead
* No assumptions required about 'stationarity'
---
## Why not to use time-varying regression?
* Autocorrelation is not modeled. That autocorrelation may hold information for forecasting.
* You are only using temporal trend for forecasting (mean level).
* If you use a high-order polynomial, you might be modeling noise from a random walk. That means interpreting the temporal pattern as having information when in fact it has none.
## Is time-varying regression used?
All the time. Most "trend" analyses are a variant of time-varying regression. If you fit a line to your data and report the trend or percent change, that's a time-varying regression.
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