Building ARIMA time series models

The term ARIMA is made up of the letters that represent a modeling approach for time series data. ARIMA models contain the following three elements:

  • AR: Auto regressive, specified with p or P
  • I: Integrated (differencing), specified with d or D
  • MA: Moving average, specified with q or Q

Auto regressive means that earlier lagged points in the data influence later points in the sequence. This creates a dependence condition. The type of AR model chosen is based on how many steps away (lags) the points in the past affect the points in the future. Data that has a greater lingering effect on future points has a higher lag. The higher the lag, the higher the AR number. You will see models referred to as AR(1), AR(2), and ...

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