The calculation of seasonal variation (Additive model)

(Pg 139 OJ)

1 Seasonal variation is a swing around the trend line
2

Using the Additive model where, X = T + S + R

3 Variation in any particular quarter will be : X - T = S + R

4 How to calculate Seasonal Variation
Step 1

Calculate the trend value for each observation

Step 2

For each observation, calculate the detrended value

Calculation of Detrended values

Deviation from trend

Year
19-2

19-3

19-4

19-5

Imports
Quarter
Trends (T) OR Detrended values
(X)
: ( X - T) = S + R
1
2
3
4
1
2
3
4
1
2
3
4
1
2

114
142
155
136
116
150
153
140
128
158
169
159
137
180

137.0
138.25
139.0
139.25
141.25
143.75
146.75
151.125
154.625
158.5
164.125
168.625

+18.0
-2.25
-23.0
+10.75
+11.75
-3.75
-18.75
+6.875
+14.375
+0.5
-27.125
+11.375

19-6

3
4
1
2

192
172
145
194

171.25
174.0

+20.75
-2.00

Step 3: Arrange figures in the following order so as to ease the calculation of seas
Step 4: Calculate the total for each quarter
Step 5: Calculate the average for each quarter

Step 6: If sum of the average calculated for all 4 quarters is not equal to zero then
6

19-2
19-3
19-4
19-5

-23.0
+10.75
-18.75 +6.875
-27.125 +11.375

Quarter
3
+18.0
+11.75
+14.375
+20.75

Total

-68.875

+29.0

+64.875

-7.5

Average

-22.958

+9.667

+16.219

-1.875

Adjust

-0.263

-0.263

-0.263

-0.263

-23.221

+9.404

+15.956

-2.138

-23

+9

+16

-2

Year

Seasonal variation

4
-2.25
-3.75
+0.5
-2.00

Assumptions
1
The sum of the 4 seasonals components for a given year is equal to zero
2
Each seasonal component ( ie each one of the four considered in the exampl
3
In a sufficiently long series, the residual influences tend to offset each other

8 The seasonal variations are: Quarter 1 = -23, Quarter 2 = +9, Quarter 3 = +16, Quarter 4= -2
What do these mean?

for eg. -23 means that economic conditions are such that the index of imports will tend to fal
will be 23 points below
Knowledge of Seasonal variation is useful for firms to make planning

The meaning of the deviations: in a particular

quarter , Seasonal and other influences have
caused import to vary from the trend by the
calculated amount
For e.g, In the 3 rd quarter of 19-2, seasonal and
other influences cause imports to rise 18.0 points
above the trend

the calculation of seasonal variation

not equal to zero then we must adjust

= (-23.0)+ (-18.75)+ (-27.125) = -68.875

=-68.96/3

=1.053

= -22.96+9.667+16.219-1.875 = 1.053
in fact should be = 0 , but is not so, hence we have to adjust by

year is equal to zero

considered in the example) is assumed to be constant over time
end to offset each other

ter 3 = +16, Quarter 4= -2

of imports will tend to fall below the trend, and on average it

we have to adjust by

How to Deseasonalise data (Additive model)

Constant fluctuations tend to hide the underlying behaviour of the variable makin
1 comparisons ans assessment over time difficult to make hence the need to desea
the data
2 Deseasonalised data = data with seasonal variation eliminated

Very easy to do: If seasonal variation is -23, meaning that our data is 23 points o
below the trend line we must therefore increase it by 23 to eliminate seasonal in
Data with Seasonal variation eliminated ( page 142 OJ)

Year

19-2

19-3

19-4

19-5

Quarter Imports (X)

Seasonal
variation

Series with seasonal

variation eliminated

114

-23

137

142

+9

133

155

+16

139

136

-2

138

116

-23

139

150

+9

141

153

+16

137

140

-2

142

128

-23

151

158

+9

149

169

+16

153

159

-2

161

137

-23

160

19-6

180

+9

171

192

+16

176

172

-2

174

145

-23

168

194

+9

185

Important To read page 142 and 143 OJ

model)

he variable making
he need to deseasonalised

ata is 23 points on average

inate seasonal influences

Calculation of Residuals (Additive model) ( page 144 OJ)

1

Residual = Original data -trend data- Seasonal variations

Residual = X - T - S
Calculation of Residual ( page 144 OJ)

Year
19-2

19-3

19-4

19-5

19-6

Imports
Quarter
Trend (T)
(X)
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2

114
142
155
136
116
150
153
140
128
158
169
159
137
180
192
172
145
194

To read OJ page 144

137.0
138.25
139.0
139.25
141.25
143.75
146.75
151.125
154.625
158.5
164.125
168.625
171.25
174.0

Seasonal
variation
(S)

Residual = X - T - S

-23
+9
+16
-2
-23
+9
+16
-2
-23
+9
+16
-2
-23
+9
+16
-2
-23
+9

2
-0.25
0
1.75
-4.25
-1.75
+4.25
2.125
-1.625
+2.5
-4.125
+2.375
4.75
0

=136 - 138.25 - (-2)=- 0.25

19-3

19-4

19-5

19-6

Quarter
19-2
1
19-2 2
19-2 3
19-2 4
19-3 1
19-3 2
19-3 3
19-3 4
19-4 1
19-4 2
19-4 3
19-4 4
19-5 1
19-5 2
19-5 3
19-5 4
19-6 1
19-6 2

Trend (T)

137.0
138.25
139.0
139.25
141.25
143.75
146.75
151.125
154.625
158.5
164.125
168.625
171.25
174.0

trend value

Year
19-2

185
184
183
182
181
180
179
178
177
176
175
174
173
172
171
170
169
168
167
166
165
164
163
162
161
160
159
158
157
156
155
154
153
152
151
150
149
148
147
146
145
144
143
142
141
140
139
138
137
136
135
19-2
1

19-2
2

19-2
3

19-2 19-3
4

Trend (T)

19-3

119-3

219-3

3 19-3 4 19-4
1

19-4
2

quarter

19-4
3

19-4
4

19-5
1

19-5
2

19-5
3

19-5 19-6
4

119-6

Trend (T)

19-6

FORECASTING METHOD
Forecasting from time series using observations which are read directly from
trend line graph (ie estimating the position of the trend by eye and work
backward) page 146 OJ
1 The basis of the forecasting lies in our knowledge of the behaviour of trend
2 The trend will not suddenly change directioon
Year Quarter Imports

Col. 1
19-5

Moving annual total Moving pair total

Col.2

Col.3

2
681
3

192

1370
689

172

1392
703

19-6

8x = 8*176.5
= 1412

145
703 + w = 8x =1412
w= 709

8y = 8*178.75
= 1430

194
709+v = 8y =1430
v =721

a =198

b =184

How to calculate a?

172 + 145 + 194 + a = 709

a = 709 -172-145-194 =198
How to calculate b?

145 + 194 + 198 + b = 721

b = 721-145-194-198 = 184

Note: There's a mistake in the book page 1

completely at the bottom. 8*178.75 = 1
not 1428, so be = 184 and not 182

ad directly from
e and work

r of trend

Trend
Col.4

171.25
174
Read from Trend line graph

x = 176.5

y = 178.75

n the book page 146

. 8*178.75 = 1430 and
nd not 182

Forecasting using average rate of change in trend

1 The problem with projecting the trend by eye is that forecasts made using this me
be consistent as opinions vary as to the future position of the trend
Year Quarter
19-2
3
4
19-3
1
2
3
4
19-4
1
2
3
4
19-5
1
2
3
4

Trend (T)
137.0
138.25
139.0
139.25
141.25
143.75
146.75
151.125
154.625
158.5
164.125
168.625
171.25
174.0

2 For the period over which the trend values are available, the trend has increased
= 37 units
3 Over the same period, the trend has changed 13 times

4 Average rate of change in trend is 37/13 = 2.846 units

Future trend values can be predicted by adding the average rate of change to the
5
values
Forecast trend for 19-6 Quarter 1 = 174.000 +2.846 = 176.846
Forecast trend for 19-6 Quarter 2 = 176.846 +2.846 = 179.692
Forecast trend for 19-6 Quarter 3 = 179.692 +2.846 = 182.538
Forecast trend for 19-6 Quarter 4 = 182.538 +2.846 = 185.384

Forecasts for these periods can now be made by adding the appropriate value for
6 variation or by 'working backward'.
6.1 Adding appropriate value for seasonal variation to forecast import
Year Quarter Forecast trend
19-6

Seasonal
variation

Forecast index

176.846

-23

153.846 =154

179.692

+9

188.692 = 189

182.538

+16

198.538 = 199

185.384

-2

183.384 = 183

Many statisticians would argue that finding the average rate of change of the tren
7 whole period for which data is available may not be a valid method of predicting
value of the trend

8 The most recent data may be the more valid and some statisticians think that the
values only should be used to estimate the future trend
To read page 148 and 149 OJ

e in trend

made using this method will not

end

nd has increased by : 174 - 137

e of change to the previous

ropriate value for seasonal

ort

change of the trend over the

hod of predicting the future

ans think that the last 3 trend

MULTIPLICATIVE MODEL

Actual data = Trend * Seasonal * Residual

1.1 X = T * S * R
X / T = S * R ( assumed to be insignificant)
2

The trend is calculated in exactly the same manner as for

additive model (using 4 Quarter , centred moving average)
Year

Quarter

Import Index

Trend

Actual/Trend

19-2

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2

114
142
155
136
116
150
153
140
128
158
169
159
137
180
192
172
145
194

137.0
138.25
139.0
139.25
141.25
143.75
146.75
151.125
154.625
158.5
164.125
168.625
171.25
174.0

1.1314
0.9837
0.8345
1.0772
1.0832
0.9739
0.8722
1.0455
1.0930
1.0032
0.8347
1.0675
1.1212
0.9885

1.1313

0.9837

19-3

19-4

19-5

19-6
4

Rearranging as below
Year
19-2

19-3

0.8345

1.0771

1.0831

0.9739

19-4

0.8722

1.0454

1.0929

1.0031

19-5

0.8347

1.0674

1.1211

0.9885

Total

2.5414

3.1899

4.4284

3.9492

Average

0.8471

1.0633

1.1071

0.9873

Adjusting by multiplying each average for each quarter by

4/4.0048, which gives :
Seasonal
ratios

0.846

1.062

1.106

0.986

sum of al
) should b
case and w

sum of all the averages ( quarter 1 to 4

) should be equal to 4. This is not the
case and we must adjust

MULTIPLICATIVE MODEL ; DESEASONALISED SERIES pg 151 OJ

To find a deseasonalised series, divide the actual data by the seasonal variation
Year

Quarter

19-2

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2

19-3

19-4

19-5

19-6

Import
Index
114
142
155
136
116
150
153
140
128
158
169
159
137
180
192
172
145
194

Seasonal
ratio
0.846
1.062
1.106
0.986
0.846
1.062
1.106
0.986
0.846
1.062
1.106
0.986
0.846
1.062
1.106
0.986
0.846
1.062

Deseasonalised index
135
134
140
138
137
141
138
142
151
149
153
161
162
169
174
174
171
183

Using seasonal ratios for forecasting

Actual forecast = Forecast trend values are multiplied by the sesonal ratios
Year
19-6

Quarter
1
2
3

Forecast
trend
176.846
179.692
182.538

Seasonal
ratio
0.846
1.062
1.106

Forecast index
149.612 = 150
190.833 = 191
201.884 = 202

185.384

0.986

182.789 = 183

y the seasonal variation

= 114 /0.846
=135

the sesonal ratios

176.846*0.846
= 149.612