An assessment of practitioners approaches to forecasting in the presence of changepoints

Abstract

A common challenge in time series is to forecast data that suffer from structural breaks or changepoints which complicate modeling. If we naively forecast using one model for the whole data, the model will be incorrect, and thus, our forecast error will be large. There are two common practices to account for these changepoints when the goal is forecasting: (1) preprocess the data to identify the changepoints, incorporating them as dummy variables in modeling the whole data, and (2) include the changepoint estimation into the model and forecast using the model fit to the last segment. This article examines these two practices, using the computationally exact Pruned Exact Linear Time (PELT) algorithm for changepoint detection, comparing and contrasting them in the context of an important Software Engineering application.