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I am working on time series forecasting of monthly averaged rainfall data (from a rainfall subdivision in India) using ARIMA methodology in R. But, in order to improve the forecast result, I want to include the (time series) data from El Niño Sea Surface Temperature (SST) data as an exogenous input in ARIMA model. Currently, I have the SST time series data with me, but I'm struggling with how to incorporate these data inputs as "xreg" in my ARIMA model i.e can I directly use the SST anomaly data values in "xreg"?

This is my data:-

    ts.rain1 <- ts(RData$Rainfall, frequency = 12, start = c(1950,1))
    ts.nino <- ts(NData$SST, frequency = 12, start = c(1949,1))

Training and Test sets:-

    data.train <- window(ts.rain1, start = c(1950,1), end = c(1995,12))
    data.test <- window(ts.rain1, start = c(1996,1))
    ninodata.train <- window(ts.nino, start = c(1949,4), end = c(1995,3))
    ninodata.test <- window(ts.nino, start = c(1995,4))

And the arima code:-

    arima2 <- Arima(data.train, order = c(4,0,4), seasonal = list(order = c(2,0,1)), xreg = ninodata.train)
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Yes, you can do that. If you simply feed the data into xreg, then Arima() will fit a regression on your predictor with ARIMA errors. (This is not an ARIMAX model. See here.)

I would recommend that you use auto.arima() from the forecast package, which will try to automatically find the best model. An ARMA(4,4) model looks rather large to me.

We have quite a few related threads here at CV. I'd recommend you browse through them.

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  • $\begingroup$ Hello Sir, can you please explain to me what is "fit a regression on your predictor with ARIMA errors". $\endgroup$ – Karan Chaudhary Mar 19 '18 at 14:34
  • $\begingroup$ Arima() will fit a regression of your dependent variable on the predictor(s) you feed into xreg. After that, it will fit an ARIMA model to the residuals of the regression. $\endgroup$ – Stephan Kolassa Mar 19 '18 at 19:58

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