Predictors, Time Series, and Model Choice
In forecasting, there are three types of models. Models with predictors. They use external variables — temperature, the economy, human behavior. These models explain why something happens. Time‑series models. They look only at the past values of the series. They explain nothing, but often predict better. Hybrid models. A combination of past dynamics and external factors. Why is it sometimes better to use only a time series? Because external variables may be unknown, hard to measure, or unpredictable themselves. Sometimes the goal is simply to predict, not to explain. ...