State-Dependent Model Based on Singular Spectrum Analysis Vector for Modeling Structural Breaks: Forecasting Indonesian Export

Abstract

Standard time-series modeling requires the stability of model parameters over time. The instability of model parameters is often caused by structural breaks, leading to the formation of nonlinear models. A state-dependent model (SDM) is a more general and flexible scheme in nonlinear modeling. On the other hand, time-series data often exhibit multiple frequency components, such as trends, seasonality, cycles, and noise. These frequency components can be optimized in forecasting using Singular Spectrum Analysis (SSA). Furthermore, the two most widely used approaches in SSA are Linear Recurrent Formula (SSAR) and Vector (SSAV). SSAV has better accuracy and robustness than SSAR, especially in handling structural breaks. Therefore, this research proposes modeling the SSAV coefficient with an SDM approach to take structural breaks called SDM-SSAV. SDM recursively updates the SSAV coefficient to adapt over time and between states using an Extended Kalman Filter (EKF). Empirical results with Indonesian Export data and simulation studies show that the accuracy of SDM-SSAV outperforms SSAR, SSAV, SDM-SSAR, hybrid ARIMA-LSTM, and VARI.

Keywords

• singular spectrum analysis vector
• structural breaks
• state-dependent model
• Indonesian export