Question

In the exponential smoothing forecast equation, what happens if the smoothing constant equals one (1)?

A) The forecast is under control
B) The forecast values equal the values of the "Naïve" forecasting method
C) The forecast value is equal to zero
D) The forecast has the lowest MAD

Answer 1

If the smoothing constant in exponential smoothing forecast equals one, the forecast values equal the values of the "Naïve" forecasting method. Option B

Step-by-step explanation:

In the exponential smoothing forecast equation, if the smoothing constant equals one (1), the forecast values equal the values of the "Naïve" forecasting method.

Exponential smoothing is a technique used in time series forecasting to assign different weights to past observations, with the most recent observations typically given more weight. The formula for exponential smoothing forecast is:

F(t+1) = α * D(t) + (1 - α) * F(t)

When the smoothing constant α equals one, it means that only the most recent observation (D(t)) is considered in the forecast. This is equivalent to the "Naïve" forecasting method, where the forecast value is simply equal to the most recent observation. Therefore, the answer is B) The forecast values equal the values of the "Naïve" forecasting method.