# What to do if ACF or PACF show significant higher lags?

I have monthly climate data for 90 years. I assembled the best model I could (added sensible parameters to minimize AIC), and then tried various ARMA correlation structures (using gls in lmne package in R) to reduce significant small (<30) lags. I then selected the ARMA model with the lowest AIC as my best model.

However, based on the ACF and PACF plots, there are still significant larger-interval lags (>30). My questions are:

1. How should I react to that? Do I consider them to be important or spurious?

• I initially assumed that if lag 60 (associated with 5 year) was significant, then this would indicate that there is a 5 year trend in my data. However, I thought I'd heard before that ACF/PACF is not a good way to approach long-term lags.
2. What do I do with this? How would I go about reducing the larger lags?

• For example, is there a specific ARMA p/q combo that 'best' reduces larger lags? Or should I try adding sin/cos variables in my model? Or some other approach?

• Again, if the ACF/PACF are not good for IDing large lags, how would I determine the 'real' long-term cyclic patterns to actually account for?

• I wound't worry about these lags, they're benign correlations. – Aksakal Mar 17 '16 at 20:00
• I agree with @Aksakal, also, note that 6 of 120 PACs are beyond the 95% limits, which is exactly what you'd expect from "true values" of 0 with sampling error. A little harder to tell with the ACF, but it looks like maybe 5-8 are beyond the 95% limits, which is also pretty much what you'd expect from "true values" of 0. – jbowman Mar 17 '16 at 20:12

If you choose your cut-off for significance for each lag to be a 95% interval (so you conclude the ACF or PACF at leach lag was non-zero if it was larger in magnitude than the boundary of the 95% interval) then when there were no non-zero population ACF or PACF values, you'd expect to see 5% of your sample values outside the bounds. (If your sample ACF or PACF values for each lag were independent of each other, the number outside would be binomial($l,0.05$), where $l$ is the number of different lags considered.)