Computational Statistics & Data Analysis 50 (2006) 22322246

www.elsevier.com/locate/csda
Decomposition of time series models in
state-space form
E.J. Godolphin
a,
, Kostas Triantafyllopoulos
b
a
Department of Mathematics, Royal Holloway University of London, Egham, Surrey, TW20 0EX, UK
b
School of Mathematics and Statistics, University of Newcastle, Newcastle upon Tyne, NE1 7RU, UK
Available online 18 January 2005
Abstract
Amethodology is proposed for decompositions of a very wide class of time series, including normal
and non-normal time series, which are represented in state-space form. In particular the linked signals
generated from dynamic generalized linear models are decomposed into a suitable sum of noise-free
dynamic linear models. A number of relevant general results are given and two important cases,
consisting of normally distributed data and binomially distributed data, are examined in detail. The
methods are illustrated by considering examples involving both linear trend and seasonal component
time series.
Published by Elsevier B.V.
Keywords: Decompositions of time series; Dynamic models; Generalized linear models; Bayesian forecasting;
State-space models; Kalman ltering
1. Introduction
Let {y
t
} denote a discrete set of observations which becomes available at regular and
roughly equal intervals of time. A key problem of time series analysis, which has received
much attention in the literature, is to decompose y
t
into independent trend and seasonal
component time series. This problem was discussed in the early path-breaking works of
Mitchell (1927), Yule (1927) and Davis (1941); and later important contributions include

Corresponding author.
E-mail addresses: E.J.Godolphin@rhul.ac.uk (E.J. Godolphin), Kostas.Triantafyllopoulos@ncl.ac.uk
(K. Triantafyllopoulos).
0167-9473/$ - see front matter Published by Elsevier B.V.
doi:10.1016/j.csda.2004.12.012
E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246 2233
the works of Whittle (1963, Chapter 8) and Hillmer and Tiao (1982). In a related work,
Pollock (2000) uses modications of the WeinerKolmogorov lter theory to extract trend
components fromeconomic time series; and the decomposition of autoregressive integrated
moving average (ARIMA) models in terms of structural trend components is considered in
the review by Pollock (2001), which provides further useful references.
Much of the recent time series literature is focussed on the specication of y
t
in terms
of an aggregation of component time series behaviour represented in state-space form.
The Kalman lter is a popular and widely used method for estimation and forecasting
state-space models; see for example Durbin and Koopman (2001) and Pollock (2003), who
provides a good account, including historical references, on the use of the Kalman lter in
Econometrics. From a Bayesian standpoint, West and Harrison (1997) propose a class of
time series dynamic linear models (TSDLMs), dened by
y
t
= j
t
+ v
t
, j
t
= F

0
t
, v
t
N(0, V), (1)
0
t
= G0
t 1
+ c
t
, c
t
N(0, W), (2)
where j
t
represents the typically unobserved time series signal which depends on a d 1
parameter vector 0
t
, v
t
denotes independent normally distributed measurement noise with
expectation zero and a nite variance V and c
t
denotes independent d 1 systemnoise with
nite covariance matrix W. An initial prior density for 0
0
is essential, typically a Gaussian
prior, i.e. 0
0
N (m
0
, C
0
), for some mean and covariance matrix m
0
and C
0
.
In many applications in practical work it is necessary to specify the measurement equation
(1) and the state equation (2) which dene the full model. The matrices F, G, VandWdepend
on unknown parameters in general and, as pointed out by Godolphin and Stone (1980), there
may be some doubt about d, the dimension of 0
t
. Estimation of the full model from the data
by maximum likelihood methods, which is described for example by Durbin and Koopman
(2001, Chapter 7), is usually effective if the series is not too short. Alternatively, the full
model can be pre-specied using suitable canonical forms as described, for example, in
West and Harrison (1997, Chapters 5 and 6).
The decomposition of the state-space model into independent component series is sub-
sequent to model specication, hence F, G, V and W are a priori known. The problem
of decomposing a restricted class of TSDLMs into minimal component series, hereafter
known as the irreducible decomposition, is achieved by West (1997). The generalization
of this problem to any TSDLM (1)(2), subject only to the assumption that the model is
observable, is given by Godolphin and Johnson (2003) who show that the signal j
t
can be
decomposed into several independent component series of ARMA or ARIMA type.
However, there are many situations where the assumption that the time series follows
a normal distribution is evidently incorrect. Behavioural and health sciences give typical
examples with distributions including binomial, Poisson, gamma, log-normal and negative
binomial. Smith (1979) and Key and Godolphin (1981) consider a steady state-space model
that has a non-normal distribution, whilst Harvey and Fernandes (1989) and Smith and
Miller (1986) discuss other non-normal models. Kitagawa and Gersch (1996) and Durbin
and Koopman (2000) study non-normal time series from a computational viewpoint. The
generalization of TSDLMs to the non-normal case is achieved by considering dynamic gen-
eralized linear models (DGLMs), in which y
t
has a distribution belonging to the exponential
2234 E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246
family. Gamerman (1991) and Hemming and Shaw (2002) use DGLMs to model survival
data, whilst Fahrmeir and Tutz (1994, p. 271) discuss interesting examples of DGLMs for
survival modelling. But the fundamental problem of decomposition of the class of DGLMs
does not appear to have been considered previously in the literature.
In this paper we describe a methodology for this decomposition provided that {y
t
} has a
distribution from the exponential family. The main results in Section 2 specify properties
of DGLMs and describe their decomposition. Section 3 considers two examples in which
the distribution of y
t
is normal and binomial. Conclusions are given in Section 4. Relevant
results on rational canonical forms are described briey in the appendix.
2. Dynamic generalized linear model
Dynamic generalized linear models (DGLMs) are extensions of Gaussian state-space
models in which it is assumed that the density, p
_
y
t
|
t
_
, of the response y
t
is a member of
the exponential family of distributions, where
t
is the natural parameter. This specication
is very general and includes the conventional Gaussian state-space model as a special case.
It also includes responses following many of the more familiar distributions, e.g. binomial,
Poisson, beta and gamma distributions.
In particular, the DGLM sets
p
_
y
t
|
t
_
= exp
_
1
a
_
[
t
_
_
z (y
t
)
t
b
_

t
__
_
c
_
y
t
, [
t
_
(observation model), (3)
where [
t
is known, c
_
y
t
, [
t
_
is a known function of y
t
and [
t
, z() is either the identity
function or a simple linear function of y
t
and the function b() is assumed to be twice
differentiable and convex.
It is known (McCullagh and Nelder, 1989) that j
t
= E
_
z (y
t
) |
t
_
= b

t
_
. The link
function g() is a known continuous monotonic function that connects j
t
to the linear
predictor p
t
, which is specied in state-space form by the dynamic linear model in terms
of the d 1 state vector 0
t
, i.e.
g
_
j
t
_
= p
t
= F

0
t
(link equation), (4)
0
t
= G0
t 1
+ c
t
, c
t
(0, W) (evolution equation), (5)
where F, G and W are known. Here the notation X (m, C) signies that the mean of the
random vector X is m and the covariance matrix of X is C. Dening y
t
= {y
1
, . . . , y
t
} to
denote the information set of data up to and including time t, it follows from an argument
developed by West and Harrison (1997, Chapter 14) that the observation equation (3) is
implicitly conditional on the information set y
t 1
_
t 2 and y
1
= y
1
_
.
2.1. Properties of the model
The analysis of model (3)(5) is based on a specied distribution for
t
. If the prior
distribution of
t
given y
t 1
is in the prior conjugate family of distributions, then the
E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246 2235
posterior density of
t
given y
t
is in this same family. The forecast density of y
t
|y
t 1
is
derived from the prior for
t
and density (3). In general the prior for
t
at time t 1 is
specied in terms of some known r
t
and s
t
and known normalizing constant (, ) by
p
_

t
|y
t 1
_
= (r
t
, s
t
) exp
_
r
t

t
s
t
b
_

t
__
. (6)
As the new observation y
t
becomes available then y
t
=
_
y
t 1
, y
t
_
so that the posterior
distribution of
t
is obtained by Bayes theorem as
p
_

t
|y
t
_
= p
_

t
|y
t 1
_
p
_
y
t
|
t
_
_
p
_
y
t
|y
t 1
_
=
_
r
t
+
y
t
a
_
[
t
_, s
t
+
1
a
_
[
t
_
_
exp
__
r
t
+
y
t
a
_
[
t
_
_

t

_
s
t
+
1
a
_
[
t
_
_
b
_

t
_
_
, (7)
where the density p
_
y
t
|y
t 1
_
is the one-step forecast distribution. Density (7) is then in the
same family of distributions as (6) and this underpins the conjugacy of the system. Note
that it does not generally follow that the forecast distribution has a recognizable form. For
an example on this see Section 3.2.
The k-step forecast distribution of y
t +k
given information y
t
is
p
_
y
t +k
|y
t
_
=
_
p
_
y
t +k
|
t +k
_
p
_

t +k
|y
t
_
d
t +k
=
{r
t
(k), s
t
(k)} c
_
y
t +k
, [
t +k
_

_
r
t
(k) + y
t +k
/a
_
[
t +k
_
, s
t
(k) + 1/a
_
[
t +k
__ (8)
such that r
t
(k) and s
t
(k) are parameters consistent with f
t
(k) =E
_
p
t +k
|y
t
_
=F

G
k
m
t
and
q
t
(k) = var
_
p
t +k
|y
t
_
= F

_
G
k
C
t
_
G

_
k
+ kW
_
F, where m
t
and C
t
are, respectively, the
posterior mean vector and covariance matrix of 0
t
.
The moments m
t
and C
t
are obtained recursively, as follows. Suppose that at time t 1,
conditional on y
t 1
, the posterior mean and covariance matrix of 0
t 1
are known, i.e.
0
t 1
|y
t 1
(m
t 1
, C
t 1
) . (9)
Then the prior rst two moments of 0
t
at time t are
0
t
|y
t 1

_
Gm
t 1
, GC
t 1
G

+ W
_
. (10)
The posterior mean and covariance matrix of 0
t
at time t are
0
t
|y
t
(m
t
, C
t
) (11)
such that
m
t
= E
_
E
_
0
t
|p
t
, y
t 1
_
|y
t
_
= Gm
t 1
+
_
GC
t 1
G

+ W
_
F
_
f

t
F

Gm
t 1
_
2236 E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246
and
C
t
= var
_
E
_
0
t
|p
t
, y
t 1
_
|y
t
_
+ E
_
var
_
0
t
|p
t
, y
t 1
_
|y
t
_
=
_
GC
t 1
G

+ W
_
_
I
d
FF

_
GC
t 1
G

+ W
_

_
1
q

t
F

(GC
t 1
G

+ W) F
_
1
F

(GC
t 1
G

+ W) F
_
,
where the conditional mean and covariance matrix of 0
t
|p
t
, y
t 1
are obtained by linear
Bayes estimation, after observing that
_
p
t
0
t

y
t 1
_

__
F

Gm
t 1
Gm
t 1
_
,
_
F

_
GC
t 1
G

+ W
_
F F

_
GC
t 1
G

+ W
_
_
GC
t 1
G

+ W
_
F GC
t 1
G

+ W
__
.
Here f

t
= E
_
p
t
|y
t
_
and q

t
= var
_
p
t
|y
t
_
are calculated from the posterior density (7).
An initial specication needs to be done for
0
0
(m
0
, C
0
) . (12)
m
0
and C
0
are chosen by the modeller, usually following vague prior specication; see
for example Triantafyllopoulos and Pikoulas (2002). For every t 1 the parameters r
t
and
s
t
need to be specied. This specication is done so that r
t
and s
t
are consistent with the
denitions of f
t
=E
_
p
t
|y
t 1
_
=F

Gm
t 1
and q
t
=var
_
p
t
|y
t 1
_
=F

_
GC
t 1
G

+ W
_
F.
Eqs. (6)(12) consist of a full algorithm with properties similar to the Kalman lter.
This algorithm can be considered optimal in two ways. Firstly, it provides a full conjugate
analysis, similar to GLMtheory, for the natural parameter
t
and for the forecast distribution
of y
t +k
|y
t
. Secondly, for the state vector 0
t
, this algorithmprovides Bayeslinear estimation,
exhibiting optimal properties such as minimum least square errors and minimum expected
risk under quadratic loss; some details on the above Bayes linear optimality appear in
Goldstein (1976) and West and Harrison (1997, Section 4.9).
2.2. Decomposition of the model
The d 1 vector F and d d evolution matrix G are specied in the link equation (4)
and evolution equation (5). It is assumed that the d d observability matrix
T =
_
F G

F
_
G

_
d1
F
_
has full rank d. This implies that G is non-derogatory, so the minimum polynomial has
degree d and is equal to the characteristic polynomial
1(z) = det (zI
d
G) = z
d
+ [
1
z
d1
+ + [
d
,
where I
d
denotes the d d identity matrix.
Let 1(z) be factorized into a product of s d relatively prime factors
1(z) = 1
1
(z)1
2
(z) 1
s
(z)
E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246 2237
such that the polynomial factor 1

(z) has degree d

, given by
1

(z) = z
d

+ [
1,
z
d

1
+ + [
d

,
( = 1, . . . , s),
where d
1
+d
2
+ +d
s
=d. This factorization can usually be achieved in many ways. If
the factors 1
1
(z), . . . , 1
s
(z) are the elementary divisors of 1(z) then this is the irreducible
primary factorization of 1(z). In general there may be repeated roots or there may exist a
primary factorization of 1(z) which is reducible, i.e. some elementary divisors are combined
and the s components of 1(z) are relatively prime. Under these conditions G is similar to a
primary rational canonical form, which implies that there is a non-singular matrix Q such
that
Q
1
GQ = C
P
= C (1
1
) C (1
2
) C (1
s
) ,
i.e. Gis similar to the direct sumof s companion matrices, such that C (1

) is the companion
matrix of 1

(z), as described in the appendix.

Let F

Q be expressed as F

Q =
_
F

1
F

2
F

s
_
where the component term F

is a
1 d

row vector, let O

denote the d

non-singular matrix
O

=
_
_
_
_
F

C (1

)
.
.
.
F

C(1

)
d

1
_

_
and let O denote the corresponding direct sum
O = O
1
O
2
O
s
.
Godolphin and Johnson (2003) showthat matrices Oand C
P
commute, which result has the
following interesting application. Dene the d 1 transformed state vector
t
=OQ
1
0
t
,
then it follows from Eq. (5) that
t
has the recursive form

t
= C
P

t 1
+ o
t
, where o
t
= OQ
1
c
t
.
Furthermore, the primary rational canonical formC
P
is a direct sumof companion matrices,
consequently the
t
and o
t
vectors can be partitioned into s components
t
=
_

1,t

s,t
_

and o
t
=
_
o

1,t
o

s,t
_

such that for each = 1, . . . , s we have

,t
= C (1

)
,t 1
+ o
,t
, (13)
and the s vector models specied by (13) are self-contained in the sense that no elements
of
t
or o
t
occur in more than one model.
Now consider the link equation (4). Let e

= [1 0 0] denote the 1 d

vector with
leading term unity and remaining terms zero. It follows that
g
_
j
t
_
= p
t
= F

0
t
= F

QQ
1
0
t
=
_
F

1
F

2
F

s
_
Q
1
0
t
=
_
e

d
1
O
1
e

d
2
O
2
e

d
s
O
s
_
Q
1
0
t
=
_
e

d
1
e

d
2
e

d
s
_
OQ
1
0
t
=
_
e

d
1
e

d
2
e

d
s
_

t
=,
(1)
t
+ ,
(2)
t
+ + ,
(s)
t
, (14)
2238 E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246
where ,
()
t
is the noise-free component time series
,
()
t
= e

,t
( = 1, . . . , s) (15)
which, together with the s component evolution equations (13), gives the required decompo-
sition. This work generalizes the TSDLM decomposition of Godolphin and Johnson (2003)
to a time series whose distribution is a member of the exponential family. The additive
property of the linked signal is demonstrated by Eq. (14); in general, however, this does not
extend to the original time series unless the inverse of the link function, g()
1
, preserves
this additive property.
Note that if 1(z) has more than two elementary divisors then the factorization into
relatively prime factors is not unique and each primary factorization implies a different
decomposition and, in particular, an irreducible decomposition results from an irreducible
primary factorization of 1(z). However, not all of these decompositions can be expected
to be independent, which is an important requirement when investigating the behavioural
properties of individual components. In practice it will be necessary to check the condition
of Godolphin and Johnson (2003, Section 5) before applying the method.
3. Examples
In this section the results of Section 2 are illustrated by considering decompositions of
time series following certain distributions in the exponential family. Two cases considered
here in detail are the normal distribution and the binomial distribution.
3.1. Normal
In the normal case, the distribution p
_
y
t
|j
t
_
in the observation equation (3) is
p
_
y
t
|j
t
_
= exp
_
1
[
t
_
y
t
j
t

j
2
t
2
_

1
2
_
y
2
t
[
t
+ log
_
2[
t
_
__
, (16)
which is the canonical form of the exponential family with b
_
j
t
_
=
1
2
j
2
t
; then E
_
y
t
|j
t
_
=
b

_
j
t
_
= j
t
and var
_
y
t
|j
t
_
= b

_
j
t
_
[
t
= [
t
so that the natural parameter is the con-
ditional mean and [
t
is the conditional variance. The canonical link in this case is the
identity function so the link equation (4) becomes j
t
= g
_
j
t
_
= p
t
= F

0
t
, from which
Eqs. (1) and (2) are obtained. Furthermore, the prior and posterior densities in Eqs. (6) and
(7) are normal and the k-step forecast distribution of y
t +k
|y
t
is normal for every integer
k 1.
To illustrate the decomposition for the normal model (16), data consisting of coded sales
of an agricultural product is considered. Monthly data for a period of seven complete years,
i.e. a total of 84 observations, are available and are plotted in Fig. 1.
A t of the primary rational canonical form, with suitably chosen initial values following
classical Bayesian procedures, appears to be adequate for these data. The 13 13 matrix
E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246 2239
time (months)
m
o
n
t
h
l
y

s
a
l
e
s
0 20 40 60 80
0
10
20
30
40
50
60
Fig. 1. Monthly coded seasonal sales of an agricultural product.
G is non-derogatory with characteristic polynomial given by
1(z) = (z 1)
2
(z + 1)
_
z
2
+ 1
_ _
z
2
z + 1
_ _
z
2
+ z + 1
_ _
z
4
z
2
+ 1
_
= (z 1)
2
(seasonal factor). (17)
This polynomial has six elementary divisors but the irreducible decomposition is of little
interest in this case because the independence condition of Godolphin and Johnson (2003)
is not satised. The factorization of (17) into two relatively prime factors corresponds to a
decomposition of j
t
into two component time series, a linear growth trend term ,
(1)
t
and
a seasonal term ,
(2)
t
with period 12. Each component model is represented by Eqs. (15)
and (13), and is specied as follows: for the linear growth trend term
,
(1)
t
= [1 0]
1,t
and
1,t
=
_
1 1
0 1
_

1,t 1
+ o
1,t
, (18)
whilst for the seasonal component
,
(2)
t
=
_
1 0

10
_

2,t
and
2,t
=
_
0
10
I
10
1 1

10
_

2,t 1
+ o
2,t
, (19)
where 0
10
and 1
10
denote the 10 1 column vectors 0
10
= [0 0 0]

and 1
10
=
[1 1 1]

.
The two component TSDLMs represented by (18) and (19) exist as independent time
series in their own right and their properties can be investigated separately. For example,
Fig. 2 considers the one-step forecasts for j
t
, and hence the original observations y
t
, by
deriving and plotting one-step forecasts for each of the two components. The additive
property of the linked signal (14) is preserved in the normal case, hence overall forecasts
for y
t
are found by combining both sets of forecasts and these are also plotted in Fig. 2.
2240 E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246
time (months)
o
n
e
-
s
t
e
p

f
o
r
e
c
a
s
t
0 20 40 60 80
-20
0
20
40
60
Fig. 2. One-step forecasts for the two components of the agricultural sales series. The solid line represents the
overall forecasts for y
t
, the dashed line shows the forecasts for the trend, and the dotted line shows the forecasts
for the seasonal component.
3.2. Binomial
Suppose that the series {y
t
} follows a binomial distribution with density
p (y
t
|
t
) =
_
z
t
y
t
_

y
t
t
(1
t
)
z
t
y
t
, y
t
= 0, 1, . . . , z
t
; 0 <
t
<1, (20)
where
t
is a random variable which denotes the probability of success at time t and z
t
is a
known positive integer at time t. Then
p (y
t
|
t
) = exp
_
y
t
log
_

t
1
t
_
+ z
t
log (1
t
)
__
z
t
y
t
_
= exp
_
z
t
_
y
t
z
t

t
log
_
1 + e

t
_
__ _
z
t
y
t
_
.
This implies that z() is the proportion z (y
t
) = y
t
/z
t
and that the natural parameter
t
=
log {
t
/ (1
t
)}. In this case b
_

t
_
= log
_
1 + e

t
_
, conrming that
t
= E {z (y
t
) |
t
} =
b

t
_
= e

t
/
_
1 + e

t
_
. The link function is g
_
j
t
_
=
t
and so the canonical link and
evolution equations are
p
t
= log
_

t
1
t
_
= F

0
t
,
0
t
= G0
t 1
+ c
t
, c
t
(0, W). (21)
The natural prior for
t
|y
t 1
is the beta distribution
p
_

t
|y
t 1
_
=
I(s
t
)
I(r
t
) I(s
t
r
t
)

r
t
1
t
(1
t
)
s
t
r
t
1
, 0 <r
t
<s
t
E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246 2241
and the posterior for
t
|y
t
is the beta distribution
p
_

t
|y
t
_
=
I(s
t
+ z
t
)
I(r
t
+ y
t
) I(s
t
+ z
t
r
t
y
t
)

r
t
+y
t
1
t
(1
t
)
s
t
+z
t
r
t
y
t
1
,
where I() is the gamma function and r
t
and s
t
are known parameters. As discussed in
Section 2 these parameters must be consistent with the denition of f
t
= E
_
p
t
|y
t
_
and
q
t
= var
_
p
t
|y
t
_
. West and Harrison (1997, p. 530) state that for the above binomial time
series it is approximately
r
t
=
1 + exp (f
t
)
q
t
and s
t
=
1 + exp (f
t
)
q
t
.
Furthermore, the normalizing constant (r
t
, s
t
) = I(s
t
) {I(r
t
) I(s
t
r
t
)}
1
. Initial set-
tings are required for m
0
and C
0
; then it is possible to calculate all r
t
and s
t
and identify all
prior and posterior densities of
t
.
The k-step forecast distribution can be obtained from Eq. (8) as
p
_
y
t +k
|y
t
_
=
I{s
t
(k)}
I{r
t
(k)} I{s
t
(k) r
t
(k)} I{s
t
(k) + z
t +k
}
_
z
t +k
y
t +k
_
I{r
t
(k) + z
t +k
y
t +k
} I{s
t
(k) r
t
(k) + z
t +k
(1 y
t +k
)} ,
where r
t
(k) and s
t
(k) are dened in Section 2. Since the forecast density has no standard
form the derivation of its moments requires evaluation of I().
The use of the binomial model (20) is illustrated by considering the quarterly data of
Table 1. In each quarter, over an eleven year period, z
t
= 25 Bernoulli trials are performed
and y
t
, the number of successes, is recorded. These data suggest there are within-year
seasonal factors affecting
t
, the probability of success, and that there is a steady increase
in
t
from year to year. It is evident that the normal model is entirely inappropriate for
analysing these data, although some state-space model should be appropriate. The binomial
model is used to investigate suggestions about possible growth and seasonality by choosing
the canonical link given by (21). The quarterly growth model selected for this purpose is
Model B2 of Godolphin (2001) but perhaps it can be argued that the asymptotic ceiling
model, i.e. Model D of Godolphin (2001), may be more appropriate. In either case the
matrix G is non-derogatory and the results of Section 2 apply.
The 44 proportions z (y
t
) = y
t
/z
t
are transformed by the logistic transformation
log
_
z (y
t
)
1 z (y
t
)
_
= log
_
y
t
z
t
y
t
_
= log
_
y
t
25 y
t
_
,
Table 1
Quarterly binomial data over a period of eleven years
Quarter yr 1 yr 2 yr 3 yr 4 yr 5 yr 6 yr 7 yr 8 yr 9 yr 10 yr 11
Q1 10 10 11 12 14 14 15 17 17 18 19
Q2 3 4 5 5 6 7 6 7 8 8 10
Q3 1 1 2 2 3 4 4 5 6 7 7
Q4 6 7 7 8 9 9 10 9 10 11 11
2242 E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246
time (years)
l
o
g
i
s
t
i
c

p
r
o
p
o
r
t
i
o
n
2 4 6 8 10 12
-3
-2
-1
0
1
Fig. 3. Transformed logistic proportions for the binomial time series. The solid line is the transformed time series
z (y
t
), the dashed line shows the trend component
t
= ,
(1)
t
, and the dotted line shows the seasonal compo-
nent ,
(2)
t
.
time (years)
p
r
o
b
a
b
i
l
i
t
y
2 4 6 8 10 12
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Fig. 4. De-seasonalized linear trend component on the original probability scale. The solid line is the tted model
u
t
/ (1 + u
t
) and the dashed line shows the de-seasonalized trend component
t
.
andthe quarterlygrowthmodel is ttedwithsuitablychoseninitial values followingclassical
Bayesian procedures, and plotted in Fig. 3. The growth component time series
t
=,
(1)
t
and
quarterly seasonal component time series ,
(2)
t
, obtained by decomposing the transformed
proportions, are also plotted in Fig. 3.
There is some interest in this situation for examining the de-seasonalized linear trend
component on the original probability scale. This is obtained in Fig. 4 by transforming
E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246 2243
back the growth term
t
by the inverse link function exp
_

t
_
/
_
1 + exp
_

t
__
and then by
superimposing this on the tted model u
t
/ (1 + u
t
), where u
t
= exp
_
,
(1)
t
+ ,
(2)
t
_
.
4. Concluding comments
This paper develops a methodology for decomposing the linked signal of a given dy-
namic generalized linear model into simple noise-free dynamic linear models. No attempt
is made to develop performance measures for the full state-space model from the method
described here. Decomposition of the signal implies a corresponding decomposition of
forecasts, which is critically useful for the development of forecast-based decisions. Since
these combined component forecasts are necessarily identical to the original forecasts for
the full model, for any given lead time and for any given model specication, it follows that
no measure of performance can usefully be inferred from these results.
The focus is on the variety of component specication, the advantage and the utility of
component forecasting and the implications for model building in terms of independent
component time series. Earlier attempts to model individual components as state-space
models include the work on seasonal models due to Harrison and Stevens (1976) and the
work on polynomial trend models due to Godolphin and Stone (1980). An advance on
this activity is our proposal of using the primary rational canonical form of the evolution
matrix to determine relevant component state-space models. This presents an approach to the
presentation of the state-space formthat complements the work of West and Harrison (1997)
and Durbin and Koopman (2001). The approach is computationally convenient, generally
applied and is applicable to normal as well as non-normal time series in state-space form.
Acknowledgements
The authors are grateful to Stephen Pollock and two referees for useful comments on an
earlier draft of the paper. The work of Kostas Triantafyllopoulos was supported by grant
NAL/00642/G of the Nufeld Foundation.
Appendix. Rational forms
To justify steps in the development of the argument of Section 2, we give below a brief
discussion of similarity analysis for matrices and the primary rational canonical form.
Two d d matrices G and H are similar if there is a non-singular matrix Q such that
H=Q
1
GQ. Similarity is an equivalence relation on the set of dd matrices, so a canonical
form of a given evolution matrix G under similarity is a standard representative of the set
of matrices similar to G. Canonical forms considered here are the rational canonical form
and the primary rational canonical form, both of which are dened over the real eld. An
alternative canonical form is the Jordan canonical form which is specied over the eld of
complex numbers. West and Harrison (1997, Section 5.4) adopt the Jordan canonical form
for a class of similar evolution matrices with real-valued eigenvalues and a modied real-
2244 E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246
valued Jordan canonical form for a class of similar evolution matrices with complex-valued
eigenvalues. Both canonical forms are real valued, however, the specication of two distinct
primary canonical forms for the similarity classes of evolution matrices can be avoided if
either the rational canonical form or the primary rational canonical form is adopted.
Let A(z) = z
n
+ o
1
z
n1
+ + o
n1
z + o
n
be a monic polynomial of degree n. Then
the companion matrix C{A(z)} associated with A(z) is the n n matrix given by
C{A(z)} =
_
_
_
_
_
_
0 1 0 0
0 0 1 0
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
0 0 0 1
o
n
o
n1
o
n2
o
1
_

_
.
Let G be a d d matrix and consider zI
d
G, the characteristic matrix of G. Let the monic
greatest common divisor of all minors of order i i of zI
d
Gbe h
i
(z) so that the invariant
factors of zI
d
G are dened by
k
i
(z) =
h
i
(z)
h
i1
(z)
i = 1, . . . , d,
where h
0
(z) =1 and h
d
(z) =det (zI
d
G). It follows that two d d matrices are similar
if and only if their characteristic matrices have the same invariant factors. Furthermore, any
d d matrix G is similar to a unique matrix of the form
C = C {k
r+1
(z)} C {k
r+2
(z)} C {k
d
(z)} , (22)
where
(i) k
r+1
(z), . . . , k
d
(z) are the d r non-constant invariant factors of zI
d
G;
(ii) k
i1
(z) is a factor of k
i
(z), for i = r + 2, . . . , d;
(iii) C {k
i
(z)} is the d
i
d
i
companion matrix associated with the monic polynomial k
i
(z)
of degree d
i
.
The matrix C in Eq. (22) is the rational canonical form of G.
The characteristic polynomial of G is the determinant of the characteristic matrix and
the minimum polynomial is the monic polynomial of least degree such that m(G) = 0. Let
the invariant factors of zI
d
G be denoted by k
1
(z), . . . , k
d
(z). Then the characteristic
polynomial is the product 1(z) = k
1
(z) k
d
(z), and the minimum polynomial is then
m(z) = k
d
(z). If k
1
(z) = = k
d1
(z) = 1 then 1(z) = m(z) = k
d
(z) and the matrix G is
said to be non-derogatory (or cyclic). We have immediately that a real-valued d d matrix
Gwith characteristic polynomial 1(z) is non-derogatory if and only if its rational canonical
form is the d d companion matrix C{1(z)}. Thus a non-derogatory matrix has rank d or
d 1, depending on whether 1(z) possesses a constant term or not.
A second canonical form which is dened as a block diagonal of companion matrices
is the primary rational canonical form. This canonical form is in general not unique and is
constructed by factorizing each of the non-constant invariant factors of the characteristic
matrix zI
d
G into relatively prime components. In the case of a non-derogatory matrix
E.J. Godolphin, K. Triantafyllopoulos / Computational Statistics &DataAnalysis 50(2006) 22322246 2245
G with characteristic polynomial
1(z) = 1
1
(z)1
2
(z) 1
s
(z),
where the s d factors 1
1
(z) 1
s
(z) are relatively prime, the matrix G is similar to
C
P
=
_
_
_
_
C (1
1
) 0 0
0 C (1
2
) 0
.
.
.
.
.
.
.
.
.
.
.
.
0 0 C (1
s
)
_

_
(23)
such that C (1
i
) is the companion matrix of 1
i
(z), (i = 1, . . . , s). Matrix representation
(23) is the primary rational canonical form for G.
If it is known that the matrix Gis non-derogatory, the key distinction between the rational
canonical form C{1(z)} and the corresponding primary rational canonical form (23) is
that the factorization of the characteristic polynomial 1(z) into relatively prime monic
polynomials is a crucial part of the formulation of the canonical form. The decomposition
of the linked signal is dependent on this factorization of the characteristic polynomial.
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