An application of the TRAMO-SEATS automatic procedure; direct versus indirect adjustment

The ARIMA-model-based methodology of programs TRAMO and SEATS for seasonal adjustment and trend-cycle estimation was applied to the exports, imports, and balance of trade Japanese series in Maravall (2002). The programs were used in an automatic mode, and the results analyzed. The present paper contains an extension of the work. First, some improvements in the automatic modelling procedure are illustrated, and the models for the seasonally adjusted series and its trend-cycle component are discussed (in particular, their order of integration). It is further shown how the SEATS output can be of help in model selection. Finally, the important problem of the choice between direct and indirect adjustment of an aggregate is addressed. It is concluded that, because aggregation has a strong effect on the spectral shape of the series, and because seasonal adjustment is a non-linear transformation of the original series, direct adjustment is preferable, even at the cost of destroying identities between the original series.