Question

# Consider the following time series data: Month 1 2 3 4 5 6 7 Value 23...

Consider the following time series data: Month 1 2 3 4 5 6 7 Value 23 13 21 13 19 24 15 (a) Compute MSE using the most recent value as the forecast for the next period. If required, round your answer to one decimal place. What is the forecast for month 8? If required, round your answer to one decimal place. Do not round intermediate calculation. (b) Compute MSE using the average of all the data available as the forecast for the next period. If required, round your answer to one decimal place. Do not round intermediate calculation. What is the forecast for month 8? If required, round your answer to one decimal place. (c) Which method appears to provide the better forecast?

a)

 naïve month value Forecast |error|^2 1 23 2 13 23 100 3 21 13 64 4 13 21 64 5 19 13 36 6 24 19 25 7 15 24 81 total 370 average 61.67 MSE = 61.7 forecast = 15.00

b)

 avereage of all data month value Forecast (error)^2 1 23 2 13 23.00 100.00 3 21 18.00 9.00 4 13 19.00 36.00 5 19 17.50 2.25 6 24 17.80 38.44 7 15 18.83 14.69 total 200.38 average 33.40 MSE = 33.4 forecast = 18.3

average of all the data available is better due to smaller MSE

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