Question

Using exponential smoothing with

α values of 0.2 and 0.8, how would you go about forecasting for period 4 from the provided data? Please explain your approach.

Answer 1

To forecast for period 4 using exponential smoothing with α values of 0.2 and 0.8, you need to assign weights to past observations based on the α value. The forecast is calculated by combining the most recent observation and the previous forecast using the formula: Forecastt = α * Actualt-1 + (1 - α) * Forecastt-1.

Step-by-step explanation:

To forecast for period 4 using exponential smoothing with α values of 0.2 and 0.8, we need to understand how exponential smoothing works. Exponential smoothing is a time series forecasting method that assigns weights to past observations, with the α value determining the weight given to the most recent observation.

Under exponential smoothing, the forecast for period 4 is calculated using the formula:

Forecastt = α * Actualt-1 + (1 - α) * Forecastt-1

For α = 0.2:

Forecast4 = 0.2 * Actual3 + 0.8 * Forecast3

For α = 0.8:

Forecast4 = 0.8 * Actual3 + 0.2 * Forecast3