Question

What are the attributes of exponential smoothing. Explain why they are important when it comes to forecasting.

Answer 1

In Exponential Smoothing, older data is given progressively less importance whereas newer data is given progressively greater importance. The smoothing parameters denoted by , determine the weights for observations.It is a time series forecasting method for univariate ata that can be extended to support data with a systematic trend or seasonal component. It is employed in making short -term forecasting as long term forecasts using this technique can be unreliable.

The advantages of exponential smoothing are as follows:

(i) It is easy to learn and apply:

(ii) It produces accurate forecasts as it accounts for the difference between actual projections and what actually occurred.

(iii) it gives more significance to recent observations.

The disadvantages are as follows:

(i) It produces forecasts that lag behind the actual trend.

(ii) It cannot handle trends well. Exponential smoothing is for short - term and in the absence of seasonal or cyclical variations.

Despite the disadvantages, the exponential smoothing is important wen it comes to forecasting due to its applicability for a wide range of time series data.