Question-1
You are a consultant who has been asked to provide a forecast of the US index of industrial production. Using the monthly data given below:
a. Compute forecasts for periods 5 through 15 using 4-month moving averages.
b. Compute forecasts for periods 5 through 15 using 4-month weighted moving averages with weights 0.4 (newest period), 0.3, 0.2, and 0.1 (oldest period).
c. How do these two sets of forecasts compare in terms of accuracy? Compute (i) the Mean Error (bias), (ii) Mean Absolute Deviation (MAD) and (iii) the Mean Absolute Percent Deviation (MAPD). What are these measures telling you?
Period US Index of Industrial Production
1 108
2 108
3 110
4 106
5 108
6 108
7 105
8 100
9 97
10 95
11 95
12 92
13 95
14 95
15 98
Question-2
For the same data in Question-1, assume that you use exponential smoothing.
a. Compute forecasts for periods 2 through 15 using exponential smoothing with a = 0.2. Assume a forecast of 100 units for period 1.
b. Compute forecasts for periods 2 through 15 using exponential smoothing with a = 0.8. Assume a forecast of 100 units for period 1.
c. How do these two sets of forecasts compare in terms of accuracy? Compute (i) the Mean Error (bias), (ii) Mean Absolute Deviation (MAD) and (iii) the Mean Absolute Percent Deviation (MAPD). What are these measures are telling you?