# How far ahead are ARIMA and Exponential smoothing useful?

Are there pragmatic bounds on how far ahead one can use an ARIMA or Exponential Smoothing forecast? I have 2 years of weekly data, yet the problem I am trying to solve requires a forecast that is 12 months out.

I'm thinking that a simple average of the LY and LLY data:

TS(week 44 year 3) = [TS(week 44 year 2) + TS(week 44 year 1)]/2


would be just a good a guess as whatever ARIMA or ETS would give me.

Is this indeed a more pragmatic approach than a more involved forecasting method?

Some of the data show a potential year to year trend, but are two years enough to decide that the TS is trending in a given direction ?

• The further ahead in time you forecast the less accurate any good forecasting method will be. The question really is what is the best model that fits the past data. – Michael R. Chernick Dec 15 '16 at 3:29
• Just calculate prediction intervals from the model and data, then you can see for yourself, and do not need a simple rule-of-thumb. – kjetil b halvorsen Dec 15 '16 at 9:49
• I have recently studied thousands of monthly time series of lengths between 1 and 84 months. Wherever possible I fit three models: univariate, regression on date (including two sinusoidal terms), and additive seasonal Holt-Winters (ETS). The HW method frequently works well to forecast the next full year provided at least three full seasons (years) of data are available. The reason is obvious: you need to estimate the individual seasonal terms with some reliability. One or two years would not be sufficient. Only 18 months tend to suffice to estimate a trend in the regression model. – whuber Jan 11 '17 at 22:29
• @whuber Do you have this study you talk about published / written in a paper? Or perhaps got a recommendation for a similar one? Am interested in it as I will soon start building forecasting models based on 3 years of weekly data to predict 3 months in the future (and possibly up to 1 year ahead). Cheers – Amonet Jan 3 '18 at 21:12
• @KaspervanEck I wish I could share it, but the methods and software I have developed are closely guarded by the client because they are the essence of its business and they view this as a competitive advantage. The time series analysis is just a tiny part of it that I use as a screening tool. There's nothing special or fancy to that; it's coded in R using standard time series packages. – whuber Jan 3 '18 at 23:55