Question

Consider the following time series data:

Month 1 2 3 4 5 6 7

Value 25 14 19 12 18 22 16

A. Compute MSE using the most recent value as the forecast for the next period.

B. Compute MSE using the average of all the data available as the forecast for the next period.

C. Computer what is the forecast for month 8

D. Which method appears to provide the better forecast?

- Naive or all data average

Answer 1

A)

month	value(A)	forecast(F)	(A-F)^2
1	25
2	14	25	121
3	19	14	25
4	12	19	49
5	18	12	36
6	22	18	16
7	16	22	36
8		16
		Average	47.17

MSE using the most recent value as the forecast =47.17

B)

month	value(A)	forecast(F)	(A-F)^2
1	25
2	14	25.00	121.00
3	19	19.50	0.25
4	12	19.33	53.78
5	18	17.50	0.25
6	22	17.60	19.36
7	16	18.33	5.44
8		18.00
		Average	33.35

MSE using the average of all the data available as the forecast =33.35

C)

  forecast for month 8 =18

D)

all data average provide the better forecast