When using causal forecasting models, the appearances of a relationship between demand and an external variable may be due to correlation.

Question

Quizplus · Accepted Answer

Causal forecasting models rely on the assumption that a cause-and-effect relationship exists between the variable being forecasted (e.g., demand) and one or more external variables. However, the appearance of a relationship can sometimes be due to correlation rather than causation, meaning that while two variables may move together, one does not necessarily cause the other to change.

When Using Causal Forecasting Models, the Appearances of a Relationship