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A Comparison of Time Series and Causal Models of Forecasting

by Praf Joglekar, La Salle University, Philadelphia, PA 19141

Time series Models Causal (Associative) Models


Assumptions

History (in terms of the components of time series - Historical relationship between "dependent" and
trend, seasonality, cycles) will repeat itself "independent" variables will remain valid in future

Independent variables are easy to predict


Procedures

Collect several periods of history on the independent


Collect several periods of history
and the dependent variables.

Using linear or non-linear and singular or multiple


Try many different methods and choose the one that
regression analysis, establish the relationship that
minimizes a chosen measure of error
minimizes mean squared error of forecast v/s actual.

Predict the independent variable(s) first. Then using


the established relationship between the independent
Use the method chosen to predict future.
and the dependent variables, predict the dependent
variable.

Data Requirement and Availability

Detailed data by Stock Keeping units (SKUs) is Aggregate data is all that is needed. However,
necessary and often available. sometimes, relevant data may not be available.

Time Requirement and Availability

Time available to do the forecasting is very short Time available to do the forecasting is usually several
(days) months.

Application
Products in the their growth or maturity phase Products in the their growth or maturity phase
Short term forecasts Medium term forecasts