current and past values of the driving (exogenous) series — that is, of the externally determined series that influences the series of interest.
In addition, the model contains an error term which relates to the fact that knowledge of other terms will not enable the current value of the time series to be predicted exactly.
Such a model can be stated algebraically as
Here y is the variable of interest, and u is the externally determined variable. In this scheme, information about u helps predict y, as do previous values of y itself. Here ε is the
error term (sometimes called noise). For example, y may be air temperature at noon, and u may be the day of the year (day-number within year).
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