Hierarchical Forecasting

What is Hierarchical Forecasting?

Hierarchical forecasting involves generating forecasts for multiple time series that share a hierarchical structure (e.g., product demand by category, department, or region). The goal is to ensure that forecasts are coherent across each level of the hierarchy. Hierarchical forecasting can be particularly important when you need to generate forecasts at different granularities (e.g., country, state, region) and ensure they align with each other and aggregate correctly at higher levels. Using TimeGPT, you can create forecasts for multiple related time series and then apply hierarchical forecasting methods from HierarchicalForecast to reconcile those forecasts across your specified hierarchy.

Why use Hierarchical Forecasting?

Ensures consistency: Forecasts at lower levels add up to higher-level forecasts.
Improves accuracy: Reconciliation methods often yield more robust predictions.
Facilitates deeper insights: Understand how smaller segments contribute to overall trends.

Tutorial

Step 1: Install, Import and Initialize

Start by installing the required packages.

pip install nixtla
pip install hierarchicalforecast

Next, initialize the TimeGPT NixtlaClient.

import pandas as pd
import numpy as np

from nixtla import NixtlaClient

nixtla_client = NixtlaClient(
    api_key='my_api_key_provided_by_nixtla'
)

Step 2: Load and Prepare Data

This tutorial uses the Australian Tourism dataset from Forecasting: Principles and Practices. The dataset contains different levels of hierarchical data, from the entire country of Australia down to individual regions.

Map of Australia color coded by state. — Examples of Australia's Tourism Hierarchy and Map

Australia hierarchical structure. — Examples of Australia's Tourism Hierarchy and Map

The dataset provides only the lowest-level series, so higher-level series need to be aggregated explicitly. Let’s load and preprocess the dataset.

Y_df = pd.read_csv(
  'https://raw.githubusercontent.com/Nixtla/transfer-learning-time-series/main/datasets/tourism.csv'
)
Y_df = Y_df.rename({'Trips': 'y', 'Quarter': 'ds'}, axis=1)
Y_df.insert(0, 'Country', 'Australia')
Y_df = Y_df[['Country', 'Region', 'State', 'Purpose', 'ds', 'y']]
Y_df['ds'] = Y_df['ds'].str.replace(r'(\d+) (Q\d)', r'\1-\2', regex=True)
Y_df['ds'] = pd.to_datetime(Y_df['ds'])

Y_df.head(10)

Country	Region	State	Purpose	ds	y
Australia	Adelaide	South Australia	Business	1998-01-01	135.077690
Australia	Adelaide	South Australia	Business	1998-04-01	109.987316
Australia	Adelaide	South Australia	Business	1998-07-01	166.034687
Australia	Adelaide	South Australia	Business	1998-10-01	127.160464
Australia	Adelaide	South Australia	Business	1999-01-01	137.448533
Australia	Adelaide	South Australia	Business	1999-04-01	199.912586
Australia	Adelaide	South Australia	Business	1999-07-01	169.355090
Australia	Adelaide	South Australia	Business	1999-10-01	134.357937
Australia	Adelaide	South Australia	Business	2000-01-01	154.034398
Australia	Adelaide	South Australia	Business	2000-04-01	168.776364

We define the dataset hierarchies explicitly. Each level in the list describes one view of the hierarchy:

spec = [
    ['Country'],
    ['Country', 'State'],
    ['Country', 'Purpose'],
    ['Country', 'State', 'Region'],
    ['Country', 'State', 'Purpose'],
    ['Country', 'State', 'Region', 'Purpose']
]

Then, use aggregate from HierarchicalForecast to generate the aggregated series:

from hierarchicalforecast.utils import aggregate

Y_df, S_df, tags = aggregate(Y_df, spec)
Y_df.head(10)

unique_id	ds	y
Australia	1998-01-01	23182.197269
Australia	1998-04-01	20323.380067
Australia	1998-07-01	19826.640511
Australia	1998-10-01	20830.129891
Australia	1999-01-01	22087.353380
Australia	1999-04-01	21458.373285
Australia	1999-07-01	19914.192508
Australia	1999-10-01	20027.925640
Australia	2000-01-01	22339.294779
Australia	2000-04-01	19941.063482

Next, create the train/test splits. Here, we use the last two years (eight quarters) of data for testing:

Y_test_df = Y_df.groupby('unique_id').tail(8)
Y_train_df = Y_df.drop(Y_test_df.index)

Step 3: Hierarchical Forecasting Using TimeGPT

Now we’ll generate base forecasts across all series using TimeGPT and then apply hierarchical reconciliation to ensure the forecasts align across each level.

Generate Base Forecasts with TimeGPT

Obtain forecasts with TimeGPT for all series in your training data.

timegpt_fcst = nixtla_client.forecast(
    df=Y_train_df,
    h=8,
    freq='QS',
    add_history=True
)

Next, separate the generated forecasts into in-sample (historical) and out-of-sample (forecasted) periods:

timegpt_fcst_insample = timegpt_fcst.query("ds < '2016-01-01'")
timegpt_fcst_outsample = timegpt_fcst.query("ds >= '2016-01-01'")

Visualize TimeGPT Forecasts

Quickly visualize the forecasts for different hierarchy levels. Here, we look at the entire country, the state of Queensland, the Brisbane region, and holidays in Brisbane:

nixtla_client.plot(
    Y_df,
    timegpt_fcst_outsample,
    max_insample_length=4 * 12,
    unique_ids=[
        'Australia',
        'Australia/Queensland',
        'Australia/Queensland/Brisbane',
        'Australia/Queensland/Brisbane/Holiday'
    ]
)

Apply Hierarchical Reconciliation

We use MinTrace methods to reconcile forecasts across all levels of the hierarchy.

The S parameter was renamed to S_df in hierarchicalforecast. Make sure you are using S_df when calling reconcile.

from hierarchicalforecast.methods import MinTrace
from hierarchicalforecast.core import HierarchicalReconciliation

reconcilers = [
    MinTrace(method='ols'),
    MinTrace(method='mint_shrink')
]

hrec = HierarchicalReconciliation(reconcilers=reconcilers)

Y_df_with_insample_fcsts = timegpt_fcst_insample.merge(Y_df.copy())

Y_rec_df = hrec.reconcile(
    Y_hat_df=timegpt_fcst_outsample,
    Y_df=Y_df_with_insample_fcsts,
    S_df=S_df,
    tags=tags
)

Now, let’s plot the reconciled forecasts to ensure they make sense across the full country → state → region → purpose hierarchy:

nixtla_client.plot(
    Y_df,
    Y_rec_df,
    max_insample_length=4 * 12,
    unique_ids=[
        'Australia',
        'Australia/Queensland',
        'Australia/Queensland/Brisbane',
        'Australia/Queensland/Brisbane/Holiday'
    ]
)

Step 4: Evaluate Forecast Accuracy

Finally, evaluate your forecast performance using RMSE for different levels of the hierarchy, from total (country) to bottom-level (region/purpose).

from hierarchicalforecast.evaluation import evaluate
from utilsforecast.losses import rmse

eval_tags = {
    'Total': tags['Country'],
    'Purpose': tags['Country/Purpose'],
    'State': tags['Country/State'],
    'Regions': tags['Country/State/Region'],
    'Bottom': tags['Country/State/Region/Purpose']
}

evaluation = evaluate(
    df=Y_rec_df.merge(Y_test_df, on=['unique_id', 'ds']),
    tags=eval_tags,
    train_df=Y_train_df,
    metrics=[rmse]
)

evaluation[evaluation.select_dtypes(np.number).columns] = evaluation.select_dtypes(np.number).map('{:.2f}'.format)

evaluation

	level	metric	TimeGPT	TimeGPT/MinTrace_method-ols	TimeGPT/MinTrace_method-mint_shrink
0	Total	rmse	1433.07	1436.07	1627.43
1	Purpose	rmse	482.09	475.64	507.50
2	State	rmse	275.85	278.39	294.28
3	Regions	rmse	49.40	47.91	47.99
4	Bottom	rmse	19.32	19.11	18.86
5	Overall	rmse	38.66	38.21	39.16

Conclusion

We made a small improvement in overall RMSE by reconciling the forecasts with MinTrace(ols), and made them slightly worse using MinTrace(mint_shrink), indicating that the base forecasts were relatively strong already. However, we now have coherent forecasts too - so not only did we make a (small) accuracy improvement, we also got coherency to the hierarchy as a result of our reconciliation step.

References

Hyndman, Rob J., and George Athanasopoulos (2021). Forecasting: Principles and Practice.

INTRODUCTION

SETUP

DATA REQUIREMENTS

FORECASTING

ANOMALY DETECTION

USE CASES

REFERENCE

About

What is Hierarchical Forecasting?

Why use Hierarchical Forecasting?

Tutorial

Step 1: Install, Import and Initialize

Step 2: Load and Prepare Data

Step 3: Hierarchical Forecasting Using TimeGPT

Generate Base Forecasts with TimeGPT

Visualize TimeGPT Forecasts

Apply Hierarchical Reconciliation

Step 4: Evaluate Forecast Accuracy

Conclusion

References

​What is Hierarchical Forecasting?

​Why use Hierarchical Forecasting?

​Tutorial

​Step 1: Install, Import and Initialize

​Step 2: Load and Prepare Data

​Step 3: Hierarchical Forecasting Using TimeGPT

​Generate Base Forecasts with TimeGPT

​Visualize TimeGPT Forecasts

​Apply Hierarchical Reconciliation

​Step 4: Evaluate Forecast Accuracy

​Conclusion

​References

What is Hierarchical Forecasting?

Why use Hierarchical Forecasting?

Tutorial

Step 1: Install, Import and Initialize

Step 2: Load and Prepare Data

Step 3: Hierarchical Forecasting Using TimeGPT

Generate Base Forecasts with TimeGPT

Visualize TimeGPT Forecasts

Apply Hierarchical Reconciliation

Step 4: Evaluate Forecast Accuracy

Conclusion

References