Exponential Smoothing with a Damped Multiplicative Trend

Taylor, James (2004) Exponential Smoothing with a Damped Multiplicative Trend. International Journal of Forecasting, 19 (4). pp. 715-725.

Abstract

Multiplicative trend exponential smoothing has received very little attention in the literature. It involves modelling the local slope by smoothing successive ratios of the local level, and this leads to a forecast function that is the product of level and growth rate. By contrast, the popular Holt method uses an additive trend formulation. It has been argued that more real series have multiplicative trends than additive. However, even if this is true, it seems likely that the more conservative forecast function of the Holt method will be more robust when applied in an automated way to a large batch of series with different types of trend. In view of the improvements in accuracy seen in dampening the Holt method, in this paper we investigate a new damped multiplicative trend approach. An empirical study, using the monthly time series from the M3-Competition, gave encouraging results for the new approach at a range of forecast horizons, when compared to the established exponential smoothing methods.

Item Type: Article
Keywords: Damped trend exponential smoothing; Pegels classification; Multiplicative trend
Subject(s): Management science
Date Deposited: 24 Jan 2012 20:11
Last Modified: 10 Feb 2017 16:54
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/1724

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