Question

If a firm produced a standard item with relatively stable demand, the smoothing constant alpha (reaction rate to differences) used in an exponential smoothing forecasting model would tend to be in which of the following ranges?​

​20 to 80 percent
​60 to 120 percent
​5 to 10 percent
​20 to 50 percent

Answer 1

Th answer is: 5 to 10 percent

Step-by-step explanation:

The smoothing constants determine how fast the weights of the series decays. If you choose a smoothing constant value near one, all the weight will be put on the most recent observations. If you choose a smoothing constant value near zero (e.g. 5-10%) then almost all the weight is put on distant past observations.

In this case, the firm produces an item with a stable demand, that means that it hasn´t changed much in time. So the smoothing constant value should be put on distant past observations.