Forecasting the individual components
The seasonal, trend and cyclical components can be separately forecast into
the future. Putting them together provides a forecast for the time series values,
Forecast = Seasonal effect + Trend forecast + Cyclical forecast
- Seasonal effect
- We forecast that the same seasonal effects will hold into the future.
- Trend forecast
- A linear or quadratic model for the trend gives forecasts of the future trend.
- Cyclical forecast
- The cyclical component can be forecast into the future with an AR(1) model.