Unlike classical regression analysis, the state space models have time-dependent parameters and provide a flexible class of dynamic and structural time series models. The unobserved component model (UCM) is a special type of state space models widely used to analyze and forecast time series. The present investigation has been carried out to study the trend of sugarcane(gur) yield in five districts (Ambala, Karnal, Panipat, Yamunanagar and Kurukshetra) of Haryana state using the unobserved component models with level, trend and irregular components. For this purpose, the time series data on sugarcane yield from 1966-67 to 2016-17 of Ambala and Karnal, 1971-72 to 2016-17 of Kurukshetra and 1980-81 to 2016-17 of Panipat and Yamunanagar districts have been used. For all the districts, the irregular component was found to be highly significant (p=0.01) while both level and trend component variances were observed non-significant. Significance analysis of the individual component(s) has also been performed for possible dropping of the level and trend components by setting their variances equal to zero. The state space models may be effectively used pertaining to Indian agriculture data, as it takes into account the time dependency of the underlying parameters which may further enhance the predictive accuracy of the most popularly used ARIMA models with parameter constancy. Moreover, the unobserved component model is capable of handling both stationary as well as non-stationary time series and thus found more suitable for sugarcane yield modeling which is a trended yield (i.e. non-stationary in nature).
Inflation and Business Cycle Convergence in the Euro Area: Empirical Analysis Using an Unobserved Component Model