Data Analysis with Microsoft Excel: Updated for Office 2007

454 Statistical Methods

To increase the smoothing factor:

1 Click the up spin button repeatedly to increase the value of w to

0.60. See Figure 11-14.

Figure 11-14

Increasing the

value of w

to 0.60

forecasted values

are more variable

only recent values are
heavily weighted

With a larger value for w, the forecasted values are much more

variable—almost as variable as the observations themselves. This is

a result of so much weight assigned to the value immediately prior to

the current value. If one value shows a large upward swing, then the

fore casted value for the next value tends to be high. As w approaches 1,

the forecasted values appear more and more like lag 1 values.

2 Continue trying different values for w to see how they affect the

smoothed curve and the standard error of the forecasts. Can you

fi nd a value for w that results in forecasts with the smallest standard

error?

3 Close the Exponential Smoothing workbook without saving your

changes. You’ll return to the workbook later in this chapter.