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Section 7.2: Exponential Smoothing

Section 7.2: Exponential Smoothing. Quantitative Decision Making 7 th ed By Lapin and Whisler. Simple Exponential Smoothing. Graphing Actual vs Forecast Values. Forecasting Errors. Two Parameter Smoothing. Simple Exponential Smoothing. Compute T 3. Compute b 3.

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Section 7.2: Exponential Smoothing

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  1. Section 7.2: Exponential Smoothing Quantitative Decision Making 7th ed By Lapin and Whisler

  2. Simple Exponential Smoothing

  3. Graphing Actual vs Forecast Values

  4. Forecasting Errors

  5. Two Parameter Smoothing

  6. Simple Exponential Smoothing

  7. Compute T3

  8. Compute b3

  9. Seasonal Exponential Smoothing with Three Parameters • Many time series have regular seasonal patterns to be incorporated into forecasts. • The three-parameter model incorporates a seasonal smoothing constant b (beta): Tt = a(Yt /St –p) + (1 – a)(Tt –1 + bt –1) bt = g(Tt– Tt –1) + (1 – g)bt –1 St = b(Yt /Tt) + (1 – b)St –p Ft+1 = (Tt + bt) St –p+1

  10. Forecasting withThree Parameters

  11. Forecasting withThree Parameters • The above works for p = 4 quarters or p = 12 months. • The preceding slide needs 6 quarters to generate the first (very bad) forecast. • The process settles quickly, providing good forecasts p periods into the future.

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