Clustering and Forecasting Multiple Functional Time Series

TL;DR

This paper introduces a novel clustering method for multiple functional time series, improving homogeneity and forecast accuracy in age-specific mortality rates by accounting for both temporal dynamics and functional variations.

Contribution

The paper proposes a new clustering technique based on functional panel data modeling that outperforms existing methods in grouping and forecasting mortality rates.

Findings

Clustering results align with geographic, ethnic, and socioeconomic factors.

The method outperforms benchmarks in forecast accuracy.

Handles slow decaying eigenvalues effectively.

Abstract

Modelling and forecasting homogeneous age-specific mortality rates of multiple countries could lead to improvements in long-term forecasting. Data fed into joint models are often grouped according to nominal attributes, such as geographic regions, ethnic groups, and socioeconomic status, which may still contain heterogeneity and deteriorate the forecast results. Our paper proposes a novel clustering technique to pursue homogeneity among multiple functional time series based on functional panel data modelling to address this issue. Using a functional panel data model with fixed effects, we can extract common functional time series features. These common features could be decomposed into two components: the functional time trend and the mode of variations of functions (functional pattern). The functional time trend reflects the dynamics across time, while the functional pattern captures the fluctuations within curves. The proposed clustering method searches for homogeneous age-specific mortality rates of multiple countries by accounting for both the modes of variations and the temporal dynamics among curves. We demonstrate that the proposed clustering technique outperforms other existing methods through a Monte Carlo simulation and could handle complicated cases with slow decaying eigenvalues. In empirical data analysis, we find that the clustering results of age-specific mortality rates can be explained by the combination of geographic region, ethnic groups, and socioeconomic status. We further show that our model produces more accurate forecasts than several benchmark methods in forecasting age-specific mortality rates.