Question 13.61

13.61 Exponential smoothing forecast equation.

We have learned that the exponential smoothing forecast equation is written as

  1. Show that the equation can be written as

    where is the residual, or prediction error, for period .

  2. Explain in words how the reexpressed equation can be interpreted.

13.61

(a) . (b) The forecasted value is equal to the previous predicted value plus a percentage of the residual of the previous value.