Decomposition

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Decomposition

• Atanas Atanasov
• Stanislav Stoychev
• Todor Dimitrov

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What is Decomposition

• The analysis of time series data attempting to
  identify the component factors that influence
  each of the values in a series.
• Primarily a tool for understanding time series,
  rather than forecasting method.

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Components

• Trend (T)
• Cyclical (C)
• Seasonal (S)
• Irregular (I)

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Some details on seasonality, cyclical data and
irregularities

• Irregularities (a.k.a. errors or residuals)
• variability in the time series after all the
  influence of the other components have been
  removed

• Cyclical
• difficult to deal with (no consistent pattern)
• trend-cycle assumption

• Seasonality
• probably the most important factor for the
  decomposition equation

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Types

• Additive
• Yt Tt St It
• Multiplicative
• Yt TtStIt

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Seasonal Adjustment

• Allows reliable comparison of values at different
  points in time
• Helps to understand easier the relationships
  among economic variables once the seasonal factor
  has been removed
• May be a useful element
• in the short-term forecasting

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Managerial Implications

• Prediction of demand cycles
• marketing plans
• seasonally determined
• production
• Used also in
• demographics
• politics
• legal fields

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Example of Decomposition

• Mr. Tux a rental store for formal
• clothing (e.g. tuxedos)

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Thank you for your attention!!!