Question

Consider the following time series data:

Month	1	2	3	4	5	6	7
Value	25	14	19	11	20	22	16

(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?
	- Select your answer -NaïveAll data averageItem 5

Answer 1

a)

month	value	Forecast	|error|^2
1	25
2	14	25	121
3	19	14	25
4	11	19	64
5	20	11	81
6	22	20	4
7	16	22	36
		total	331
		average	55.17
MSE =			55.2
forecast =			16.0

b)

month	value	Forecast	(error)^2
1	25
2	14	25.00	121.00
3	19	19.50	0.25
4	11	19.33	69.44
5	20	17.25	7.56
6	22	17.80	17.64
7	16	18.50	6.25
		total	222.15
		average	37.02
MSE =			37.0
forecast =			18.1

c)

since MSE for All data average is smaller, this one is better