CASE 11.

2: FORECASTING COLAs

1. Weighted Moving Averages Method

Forecasting Constant  
Span 3
Moving Averages  
Mean Abs Err 0.79
Root Mean Sq Err 0.90
Mean Abs Per% Err 0.53%

Forecasted value for:

November 2002 181.00

December 2002 181.10

2. Exponential Smoothing (Simple)

Forecasting Constant (Optimized)  

Level (Alpha) 1.000
Simple Exponential  
Mean Abs Err 0.42
Root Mean Sq Err 0.53
Mean Abs Per% Err 0.28%

Forecasted value for:

November 2002 181.30

December 2002 181.30

3. Double Exponential Smoothing (Holt’s Method)

Forecasting Constants (Optimized)  

Level (Alpha) 1.000
Trend (Beta) 0.000
Holt's Exponential  
Mean Abs Err 0.26
Root Mean Sq Err 0.38
Mean Abs Per% Err 0.17%

Forecasted value for:

November 2002 181.67

December 2002 182.04
4. Holt Winter’s Method for Additive Seasonal Effects

Forecasting Constants (Optimized)  

Level (Alpha) 1.000
Trend (Beta) 0.000
Season (Gamma) 0.000
Winters' Exponential  
Mean Abs Err 0.21
Root Mean Sq Err 0.33
Mean Abs Per% Err 0.14%

Forecasted value for:

November 2002 181.36

December 2002 181.22

Mean

CPI
Runs Test for Randomness CPI
Observations 178
Below Mean 86
Above Mean 92
Number of Runs 2
Mean 151.00
E(R) 89.8989
StdDev(R) 6.6444
Z-Value -13.2291
P-Value (two-tailed) < 0.0001

Median

CPI
Runs Test for Randomness CPI
Observations 178
Below Median 89
Above Median 89
Number of Runs 2
Median 152.20
E(R) 90.0000
StdDev(R) 6.6520
Z-Value -13.2292
P-Value (two-tailed) < 0.0001

Conclusion:

Out of these four methods, Holt’s method is the best because forecasted values for
November and December are higher than all other methods. i.e 181.67 and 182.04 respectively.