Clustering and Forecasting Multiple Functional Time Series

Modeling 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 pro-poses a novel clustering technique to pursue homogeneity among multiple functional time series, based on functional panel data modeling, to address this issue. Using a functional panel data model with fixed effects, we can ex-tract 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 re-flects the dynamics across time, while the functional pattern captures the fluc-tuations 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 exist-ing 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.