Simple exponential smoothing is not appropriate for forecasting data that exhibit extended trends. In two-parameter (Holt) exponential smoothing, the data are assumed to consist of fluctuations about a level that is changing with some constant or slowly drifting linear trend. Two-parameter exponential smoothing is often called the Holt method, after its originator C. C. Holt.3 Two-parameter exponential smoothing is appropriate for forecasting sales in established markets with stable growth; it is inappropriate in either stable or rapidly growing markets.
3 C. C. Holt, Forecasting Seasonals and Trends by Exponentially Weighted Moving Averages (Pittsburgh, PA: Carnegie Institute of Technology, 1957).
MANAGERIAL APPLICATION 6.4
How Good Is Your Forecasting Ability?
When making predictions of economic and social change, it is vitally important to be aware of broad trends in the overall economy. One valuable source of information on the U.S. economy is the Statistical Abstract of the United States. This annual publication of the U.S. Bureau of the Census offers a wealth of economic and demographic data upon which private and public sector analysts rely.
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