following data reps demand for items from the store over 14

following data reps demand for items from the store over 14 dayz. Split the data in to 2 equal parts of 7 days each. Assume F₁ = 198.

Make spreadsheet using the first 7 days of demand to see the best exponential smoothing model for values of = 0.2, = 0.3, = 0.4. pick the model with the smallest absolute deviation for 7periods.

Make another spreadsheet using the holdout sample for the second 7 days to compare the best exponential smoothing model found in part a with a 3PMA three-period moving average model. Compare predictions on the basis of the total absolute deviation for the 7 periods.

What principles does this problem show?

Solution

The next 7 days give less absolute deviation for this model.

This problem shows that forecast are more accurate in the shorter term than longer time horizons.