Find the adaptive response-rate exponential smoothing method

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Reference no: EM131463137

Question: Trigg and Leach (1967) suggest the following adaptive response-rate exponential smoothing method. Along with smoothing the original series, also smooth the error |et| and the absolute error |et| according to the equations

The idea behind the approach is that when Et is close in magnitude to Mt, it suggests that the forecasts are biased. In that case, a larger value of the smoothing constant results that makes the exponential smoothing more responsive to sudden changes in the series.

a. Apply the Trigg-Leach method to the data. Using the MAD, compare the accuracy of these forecasts with the simple exponential smoothing forecasts obtained. Assume that E1 = e1 (the observed error in January) and M1 = e1. Use - = 1.

b. For what types of time series will the Trigg-Leach adaptive response rate give more accurate forecasts, and under what circumstances will it give less accurate forecasts? Comment on the advisability of using such a method for situations in which forecasts are not closely monitored.

Reference no: EM131463137

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