Question

The smoothing constant chosen in simple exponential smoothing determines the weight to be placed on different terms of time-series data. If the smoothing factor is high rather than low, is more or less weight placed on recent observations? If α is 0.3, what weight is applied to the observation four periods ago?

Answer 1

Answer:

The smoothing factor is close to 1, the values of the time series are more heavily weighted that the values in the distant past. When the value of the smoothing factor is close to zero, the values of the time series are more evenly weighted with the values in the recent past values.  

Calculate the weight applied to the observations four periods ago as shown below:

F₁ +1 = (1- a)F₁ + a(A₁) = (1 -0.3)F₁ + 0.3(4) = (0 .7) F₁+ (0.3) (A₁)  

F₄ = (0.7) F₁ + (0.3) A₁

Here, F₁ = Forecasted demand of t period A₁ = Actual demand

Explanation: