Question

Alabama building contracts for a 12-month period (in millions of dollars) are:

240, 350, 230, 260, 280, 320, 220, 310, 240, 310, 240, and 230.
Compare a three-month moving average forecast with an exponential smoothing forecast using α = 0.2. Which provides the better forecasts?

Answer 1

To compare a three-month moving average forecast with an exponential smoothing forecast, calculate the moving average and exponential smoothing forecast values. Compare the values to determine which gives better forecasts.

Step-by-step explanation:

To compare a three-month moving average forecast with an exponential smoothing forecast, we first need to calculate the moving average and exponential smoothing forecast values.

For the three-month moving average forecast, we take the average of the current month and the two previous months. So, for the first month, we have no previous values, and for the second month, we only have one previous value. We compute the moving average forecast for each month accordingly.

For the exponential smoothing forecast, we use the formula: ŷt = αxt + (1-α)ŷt-1. We start by assuming ŷ0 = x0, and then apply the formula for each subsequent month.

Once we have the moving average and exponential smoothing forecast values, we can compare them to determine which provides the better forecasts.