Which is better ARIMA or state space model?

Which is better ARIMA or state space model?

Criticism and additions are very welcome! Overall – compared to ARIMA, state-space models allow you to model more complex processes, have interpretable structure and easily handle data irregularities; but for this you pay with increased complexity of a model, harder calibration, less community knowledge.

Can a model be represented in state space?

Any ARIMA model can be represented in a state-space form, but only simple state-space models can be represented exactly in ARIMA form. Here is some preliminary list of disadvantages I was able to extract from your comments. Criticism and additions are very welcome!

How to calculate the number of States in Arima?

The polynomials in this case can be written as: η1 = 1+ϕ1 η2 = −ϕ1 η3 = 0 η4 = 1 η5 = −(1+ϕ1) η6 = ϕ1, η 1 = 1 + ϕ 1 η 2 = − ϕ 1 η 3 = 0 η 4 = 1 η 5 = − ( 1 + ϕ 1) η 6 = ϕ 1, leading to 6 states, one of which can be dropped (the third one, for which both η3 = 0 η 3 = 0 and θ3 = 0 θ 3 = 0 ).

What are the advantages and disadvantages of Arima?

ARIMA is a universal approximator – you don’t care what is the true model behind your data and you use universal ARIMA diagnostic and fitting tools to approximate this model. It is like a polynomial curve fitting – you don’t care what is the true function, you always can approximate it with a polynomial of some degree.

What are the advantages of state space models?

They also emphasize the advantages. Perhaps one of the major advantages is the easiness with which you can integrate many state space models by simply augmenting the state vector. You can, for example, seamlessly integrate regressors, seasonal factors, and an autoregressive component in a single model.

What are advantages of state-space models and Kalman filter?

I can think only of advantages of a state-space model: It easily handles structural breaks, shifts, time-varying parameters of some static model – just make those parameters dynamic states of a state-space model and model will automatically adjust to any shifts in parameters;