Question

Consider the following time series data:

Month 1 2 3 4 5 6 7

Value 24 13 21 14 20 23 15

(b) Develop a three-month moving average for this time series. Compute MSE and a forecast for month 8.

If required, round your answers to two decimal places. Do not round intermediate calculation.

MSE:

The forecast for month 8:

(c) Use α = 0.2 to compute the exponential smoothing values for the time series. Compute MSE and a forecast for month 8.

If required, round your answers to two decimal places. Do not round intermediate calculation.

MSE:

The forecast for month 8:

Answer 1

b)

month	value	forecast	|error|	error^2
1	24
2	13
3	21
4	14	19.33	-5.33	28.44
5	20	16.00	4.00	16.00
6	23	18.33	4.67	21.78
7	15	19.00	-4.00	16.00
			total	82.22
			average	20.56
MSE=			20.56
Forecast=			19.33

c)

month	value	forecast	error	error^2
1	24
2	13	24.00	-11.00	121.00
3	21	21.80	-0.80	0.64
4	14	21.64	-7.64	58.37
5	20	20.11	-0.11	0.01
6	23	20.09	2.91	8.47
7	15	20.67	-5.67	32.17
			total	220.66
			average	36.78
MSE=			36.78
Forecast=			19.54

The three-month moving average provides a better forecast since it has a smaller MSE