Time Series Analysis and Forecasting

Chapter 8
Time Series Analysis and Forecasting

Solutions:

1. The following table shows the calculations for parts (a), (b), and (c).

Absolute Absolute
Time Value of Squared Value of
Series Forecast Forecast Forecast Percentage Percentage
Week Value Forecast Error Error Error Error Error
1 18
2 13 18 -5 5 25 -38.46 38.46
3 16 13 3 3 9 18.75 18.75
4 11 16 -5 5 25 -45.45 45.45
5 17 11 6 6 36 35.29 35.29
6 14 17 -3 3 9 -21.43 21.43
Totals 22 104 -51.30 159.38

a. MAE = 22/5 = 4.4

b. MSE = 104/5 = 20.8

c. MAPE = 159.38/5 = 31.88

d. The forecast for week 7 is ŷ 7 = y 6 = 14.

2. The following table shows the calculations for parts (a), (b), and (c).
Absolute Absolute
Time Value of Squared Value of
Series Forecast Forecast Forecast Percentage Percentage
Week Value Forecast Error Error Error Error Error
1 18
2 13 18.00 -5.00 5.00 25.00 -38.46 38.46
3 16 15.50 0.50 0.50 0.25 3.13 3.13
4 11 15.67 -4.67 4.67 21.81 -42.45 42.45
5 17 14.50 2.50 2.50 6.25 14.71 14.71
6 14 15.00 -1.00 1.00 1.00 -7.14 7.14
Totals 13.67 54.31 -70.21 105.86

a. MAE = 13.67/5 = 2.73

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 Time Series Analysis and Forecasting

b. MSE = 54.31/5 = 10.86

c. MAPE = 105.89/5 = 21.18

d. The forecast for week 7 is ŷ 7 = (y 1 + y 2 + y 3 + y 4 + y 5 + y 6 ) / 6 = (18 + 13 +

16 + 11 + 17 + 14) / 6 = 14.83.

3. a.

Time Squared
Series Forecast Forecast
Month Value Forecast Error Error
1 24
2 13 24 -11 121
3 20 13 7 49
4 12 20 -8 64
5 19 12 7 49
6 23 19 4 16
7 15 23 -8 64
Total 363

MSE = 363/6 = 60.5

The forecast for month 8 is ŷ8 = y 7 = 15.

b.
Time Squared
Series Forecast Forecast
Week Value Forecast Error Error
1 24
2 13 24.00 -11.00 121.00
3 20 18.50 1.50 2.25
4 12 19.00 -7.00 49.00
5 19 17.25 1.75 3.06
6 23 17.60 5.40 29.16
7 15 18.50 -3.50 12.25
Total 216.72

MSE = 216.72/6 = 36.12

Forecast for month 8 is ŷ8 = (y 1 + y 2 + y 3 + y 4 + y 5 + y 6 + y 7) / 7 = (24 + 13 +
20 + 12 + 19 + 23 + 15) / 7 = 18.

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 Time Series Analysis and Forecasting

c. The average of all the previous values is better because MSE is smaller.

4. a. Three-week moving average.

Time Squared
Series Forecast Forecast
Week Value Forecast Error Error
1 18
2 13
3 16
4 11 15.67 -4.67 21.78
5 17 13.33 3.67 13.44
6 14 14.67 -0.67 0.44
Total 35.67

MSE = 35.67/3 = 11.89

The forecast for week 7 is ŷ 7 = (y 4 + y 5 + y 6) / 3 = (11 + 17 + 14) / 3 = 14.

b. Smoothing constant = 0.2

Time Squared
Series Forecast Forecast
Week Value Forecast Error Error
1 18
2 13 18.00 -5.00 25.00
3 16 17.00 -1.00 1.00
4 11 16.80 -5.80 33.64
5 17 15.64 1.36 1.85
6 14 15.91 -1.91 3.66
Total 65.15

MSE = 65.15/5 = 13.03

The forecast for week 7 is ŷ 7 = y 6 + (1- ) ŷ 6 = 0.2(14) + (1 - 0.2)15.91 =

15.53.

c. The three-week moving average provides a better forecast since it has a

smaller MSE.

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 Time Series Analysis and Forecasting

5. a. Three-week moving average.

Time Squared
Series Forecast Forecast
Week Value Forecast Error Error
1 24
2 13
3 20
4 12 19.00 -7.00 49.00
5 19 15.00 4.00 16.00
6 23 17.00 6.00 36.00
7 15 18.00 -3.00 9.00
Total 110.00

MSE = 110/4 = 27.5.

The forecast for week 8 is ŷ8 = (y 5 + y 6 + y 7) / 3 = (19 + 23 + 15) / 3 = 19.

b. Smoothing constant = 0.2

Time Squared
Series Forecast Forecast
Week Value Forecast Error Error
1 24
2 13 24.00 -11.00 121.00
3 20 21.80 -1.80 3.24
4 12 21.44 -9.44 89.11
5 19 19.55 -0.55 0.30
6 23 19.44 3.56 12.66
7 15 20.15 -5.15 26.56
Total 252.87

MSE = 252.87/6 = 42.15

The forecast for week 8 is ŷ8 = y 7 + (1- ) ŷ 7 =0.2(15) + (1 - 0.2)20.15 =

19.12.

d. The three-week moving average provides a better forecast since it has a

smaller MSE.

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 Time Series Analysis and Forecasting

6. a. Four and Five -week moving averages.

4 Period 5 period
Moving Moving
Week Sales Average Average
1 17
2 21
3 19
4 23
5 18 20.00
6 16 20.25 19.60
7 20 19.00 19.40
8 18 19.25 19.20
9 22 18.00 19.00
10 20 19.00 18.80
11 15 20.00 19.20
12 22 18.75 19.00

b. The MSE for the four-week and five-week moving averages.

For the four-week moving average:

Time Squared
Series Forecast Forecast
Week Value Forecast Error Error
1 17
2 21
3 19
4 23
5 18 20.00 -2.00 4.0000
6 16 20.25 -4.25 18.0625
7 20 19.00 1.00 1.0000
8 18 19.25 -1.25 1.5625
9 22 18.00 4.00 16.0000
10 20 19.00 1.00 1.0000
11 15 20.00 -5.00 25.0000
12 22 18.75 3.25 10.5625
Total 77.1875

MSE = 77.1875/8 = 9.648

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 Time Series Analysis and Forecasting

For the five-week moving average:

Time Squared
Series Forecast Forecast
Week Value Forecast Error Error
1 17
2 21
3 19
4 23
5 18
6 16 19.60 -3.60 12.96
7 20 19.40 0.60 0.36
8 18 19.20 -1.20 1.44
9 22 19.00 3.00 9.00
10 20 18.80 1.20 1.44
11 15 19.20 -4.20 17.64
12 22 19.00 3.00 9.00
Total 51.84

MSE = 51.84/7 = 7.406

c. The MSE for the moving average forecasts are:

three week 10.22

four week 9.648
five week 7.406

Using the MSE as our standard, the best number of weeks of past data to use
in the moving average computation is five.

d. Exponential smoothing forecasts using α = 0.1:

Time Squared
Series Forecast Forecast
Week Value Forecast Error Error
1 17 17.00
2 21 17.00 4.00 16.00
3 19 17.40 1.60 2.56
4 23 17.56 5.44 29.59
5 18 18.10 -0.10 0.01
6 16 18.09 -2.09 4.38
7 20 17.88 2.12 4.48
8 18 18.10 -0.10 0.01
9 22 18.09 3.91 15.32
10 20 18.48 1.52 2.32

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 Time Series Analysis and Forecasting

11 15 18.63 -3.63 13.18

12 22 18.27 3.73 13.94
Total 101.78

MSE = 101.78/11 = 9.253

For a smoothing constant of α = 0.2:

Time Squared
Series Forecast Forecast
Week Value Forecast Error Error
1 17 17.00
2 21 17.00 4.00 16.00
3 19 17.80 1.20 1.44
4 23 18.04 4.96 24.60
5 18 19.03 -1.03 1.07
6 16 18.83 -2.83 7.98
7 20 18.26 1.74 3.03
8 18 18.61 -0.61 0.37
9 22 18.49 3.51 12.34
10 20 19.19 0.81 0.66
11 15 19.35 -4.35 18.94
12 22 18.48 3.52 12.38
Total 98.80

MSE = 98.80 / 11 = 8.982

Applying the MSE measure of forecast accuracy, a smoothing constant of α =

0.2 produces a smaller MSE and so is preferred.

e. For a smoothing constant of α = 0.1:

Time Absolute
Series Forecast Forecast
Week Value Forecast Error Error
1 17 17.00
2 21 17.00 4.00 4.00
3 19 17.40 1.60 1.60
4 23 17.56 5.44 5.44
5 18 18.10 -0.10 0.10
6 16 18.09 -2.09 2.09
7 20 17.88 2.12 2.12
8 18 18.10 -0.10 0.10
9 22 18.09 3.91 3.91

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 Time Series Analysis and Forecasting

10 20 18.48 1.52 1.52

11 15 18.63 -3.63 3.63
12 22 18.27 3.73 3.73
Total 28.25

MAE = 28.25 / 11 = 2.568

For a smoothing constant of α = 0.2:

Time Absolute
Series Forecast Forecast
Week Value Forecast Error Error
1 17 17.00
2 21 17.00 4.00 4.00
3 19 17.80 1.20 1.20
4 23 18.04 4.96 4.96
5 18 19.03 -1.03 1.03
6 16 18.83 -2.83 2.83
7 20 18.26 1.74 1.74
8 18 18.61 -0.61 0.61
9 22 18.49 3.51 3.51
10 20 19.19 0.81 0.81
11 15 19.35 -4.35 4.35
12 22 18.48 3.52 3.52
Total 28.56

MAE = 28.56 / 11 = 2.596

Applying the MAE measure of forecast accuracy, a smoothing constant of α =

0.1 produces a slightly smaller MAE and so is preferred.

f. For a smoothing constant of α = 0.1:

Absolute Value
Time 100*(Forecast of 100*(Forecast
Series Forecast Error/ Time Error/ Time
Week Value Forecast Error Series Value) Series Value)
1 17 17.00
2 21 17.00 4.00 19.05 19.05
3 19 17.40 1.60 8.42 8.42
4 23 17.56 5.44 23.65 23.65
5 18 18.10 -0.10 -0.58 0.58

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 Time Series Analysis and Forecasting

6 16 18.09 -2.09 -13.09 13.09

7 20 17.88 2.12 10.58 10.58
8 18 18.10 -0.10 -0.53 0.53
9 22 18.09 3.91 17.79 17.79
10 20 18.48 1.52 7.61 7.61
11 15 18.63 -3.63 -24.20 24.20
12 22 18.27 3.73 16.97 16.97
Total 142.46

MAPE = 142.46 / 11 = 12.95

For a smoothing constant of α = 0.2:

Absolute Value
Time 100*(Forecast of 100*(Forecast
Series Forecast Error/ Time Error/ Time
Week Value Forecast Error Series Value) Series Value)
1 17 17.00
2 21 17.00 4.00 19.05 19.05
3 19 17.80 1.20 6.32 6.32
4 23 18.04 4.96 21.57 21.57
5 18 19.03 -1.03 -5.73 5.73
6 16 18.83 -2.83 -17.66 17.66
7 20 18.26 1.74 8.70 8.70
8 18 18.61 -0.61 -3.38 3.38
9 22 18.49 3.51 15.97 15.97
10 20 19.19 0.81 4.05 4.05
11 15 19.35 -4.35 -29.01 29.01
12 22 18.48 3.52 15.99 15.99
Total 147.43

MAPE = 147.43 / 11 = 13.40

Applying the MAPE measure of forecast accuracy, a smoothing constant of α

= 0.1 produces a smaller MAPE and so is preferred.

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