Working Papers 2008 – Abstracts

A View of Damped Trend as Incorporating a Tracking Signal into a State Space Model

Ralph D. Snyder and Anne B. Koehler

Damped trend exponential smoothing has previously been established as an important forecasting method. Here, it is shown to have close links to simple exponential smoothing with a smoothed error tracking signal. A special case of damped trend exponential smoothing emerges from our analysis, one that is more parsimonious because it effectively relies on one less parameter. This special case is compared with its traditional counterpart in an application to the annual data from the M3 competition and is shown to be quite competitive.

Keywords: exponential smoothing, monitoring forecasts, structural change, adjusting forecasts, state space models, damped trend

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