Multivariate time series models

Multivariate time series models are designed to capture the dynamic of multiple time series simultaneously and leverage dependencies across these series for more reliable predictions.

Systems of equations

Univariate time series models like the ARMA approach, we just discussed are limited to statistical relationships between a target variable and its lagged values or lagged disturbances and exogenous series in the ARMAX case. In contrast, multivariate time series models also allow for lagged values of other time series to affect the target. This effect applies to all series, resulting in complex interactions, as illustrated in the following diagram:

In addition to potentially better forecasting...