Multiplicative and Additive Decomposition TS

TS dataset from St. Louis FRED of seasonally adjusted civilian umeployment rate from Jan 1948 to June 2019

library(fpp2)

## Warning: package 'fpp2' was built under R version 3.5.3

## Loading required package: ggplot2

## Warning: package 'ggplot2' was built under R version 3.5.3

## Loading required package: forecast

## Warning: package 'forecast' was built under R version 3.5.3

## Loading required package: fma

## Warning: package 'fma' was built under R version 3.5.3

## Loading required package: expsmooth

## Warning: package 'expsmooth' was built under R version 3.5.3

civunemployment = read.csv("C:/Users/Demetri/Desktop/FRED Civilian Unemp Rate.csv")
plot(civunemployment)

tsunemployment = ts(civunemployment, frequency=12)
plot(tsunemployment)

Additive decomposing

additiveDecomposing = decompose(tsunemployment, type="additive")
plot(additiveDecomposing)

Multiplicative decomposing

multDecomposing = decompose(tsunemployment, type = "multiplicative")
plot(multDecomposing)

MSE comparison

multDecomposing = na.omit(multDecomposing$random)
additiveDecomposing = na.omit(additiveDecomposing$random)
mseMultDecomp = sqrt(mean(abs(additiveDecomposing)^2))
mseAddDecomp = sqrt(mean(abs(multDecomposing)^2))
mseMultDecomp

## [1] 0.1368363

mseAddDecomp

## [1] 0.9993203

Multiplicative Decomposition has a lower MSE, therefore is the better choice.

.