From the course: Business Analytics: Forecasting with Trended Baseline Smoothing

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Compare smoothing and error correction forms

Compare smoothing and error correction forms

From the course: Business Analytics: Forecasting with Trended Baseline Smoothing

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Compare smoothing and error correction forms

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- [Instructor] Here's the smoothing form of the forecast equation for a baseline's level. L hat sub T plus one equals alpha times L sub T plus one minus alpha times L hat sub T. Using the smoothing form, the forecast level for time T plus one is alpha times the actual observation at time T, symbolized by L sub T, plus one minus alpha plus the forecast level for time T symbolized by L hat sub T. For a trended baseline, we also need to forecast the trend, also termed the slope. The smoothing form of the forecast equation for the baseline's trend has the same pattern, but uses a different smoothing constant. The trend's smoothing constant is often termed gamma. S hat sub T plus one equals gamma S sub T plus one minus gamma S hat sub T. The forecast trend for time T plus one is gamma times the actual slope at time T, symbolized by S sub T, plus one minus gamma times the forecast slope for time T, symbolized by S hat sub T. In each case, using the smoothing form, the forecast is the…

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