When the more recent observations are more relevant to the estimate of the next period than previous observations,the naïve forecasting method to employ is
A)exponential smoothing.
B)compound growth rate.
C)trend analysis.
D)moving averages.

Question

Quizplus · Accepted Answer

Exponential smoothing is a forecasting method that places more weight on the more recent observations, making it a suitable choice when they are more relevant to the estimate of the next period than previous observations. This weight is controlled by a smoothing parameter which determines the relative importance of past and present observations. As a result, exponential smoothing can produce more accurate forecasts than other methods, such as moving averages or trend analysis, when recent data is more important. Compound growth rate is not appropriate in this case as it assumes a constant rate of growth over time.

When the More Recent Observations Are More Relevant to the Estimate