Forecasting before, during, and after recession with singular spectrum analysis

Abstract

The aim of this research is to apply the singular spectrum analysis (SSA) technique, which is a relatively new and powerful technique in time series analysis and forecasting, to forecast the 2008 UK recession, using eight economic time series. These time series were selected as they represent the most important economic indicators in the UK. The ability to understand the underlying structure of these series and to quickly identify turning points such as the on-set of the recent recession is of key interest to users. In recent years, the SSA technique has been further developed and applied to many practical problems. Hence, these series will provide an ideal practical test of the potential benefits from SSA during one of the most challenging periods for econometric analyses of recent years. The results are compared with those obtained using the ARIMA and Holt–Winters models as these methods are currently used as standard forecasting methods in the Office for National Statistics in the UK.

Keywords:

• singular spectrum analysis
• forecasting
• recession

Acknowledgement

The authors are grateful to Christopher Davies, Office for National Statistics, for providing the data sets used in this research.