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Practical Time Series Analysis by Dr. PKS Prakash, Dr. Avishek Pal

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First order exponential smoothing

First order exponential smoothing or simple exponential smoothing is suitable with constant variance and no seasonality. The approach is usually recommended to make short-term forecast. Chapter 2, Understanding Time Series data, has introduced the naïve method for the forecasting where prediction in horizon h is defined as value of t (or the last observation):

xt+h = xt

The approach is extended by simple moving average, which extends the naïve approach using the mean of multiple historical points:

The approach assumes equal weight to all historical observations, as shown in the following figure:

Figure 3.4: ...

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