The following table shows six years of average annual cost-of-living index data:
|
Year
|
Annual Cost of Living Index
|
|
2008
|
105.8
|
|
2009
|
111.4
|
|
2010
|
121.9
|
|
2011
|
134.3
|
|
2012
|
128.6
|
|
2013
|
125.2
|
(a) Forecast the average annual food price index for all years from 2008 to 2013. Use a 3-year weighted moving average with weights of 0.5, 0.3, and 0.2. Use the largest weight with the most recent data.
(b) Forecast the average annual food price index using exponential smoothing with α = 0.7 for all years from 2008 to 2014. Use the rate for 2008 as the starting forecast for 2008.
(c) Which of the methods in parts (a) and (b) produces better forecasts for the 3 years from 2011 to 2013? Answer on the basis of mean square error (MAD).