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ML Academy

Introduced on day 26

Forecast reconciliation

Adjusting forecasts made separately at different levels of a hierarchy so that parts add up to the totals, using information from every level.

In detail

Bottom-up keeps the lowest level and sums; top-down forecasts the total and splits it by proportions; optimal combination or MinT reconciles all levels with weights from the base forecast error covariance. Reconciled forecasts are coherent by construction. They improve accuracy when levels carry different information, but they do not remove bias shared by all levels.