Exercise 2 – Application

For the Original data for data for Business Turnover Index; Retail trade; Current Price (Series ID: A124908165V) available in Table 6: Forecast the out-of-sample values for every month in the period February 2021 – July 2022 (both months inclusive) using one appropriate smoothing model. Your starting values for any parameter should be 0.25.

Once you develop an appropriate exponential smoothing model with starting values for parameter/s = 0.25, what are the following numerical values:

11. The within-sample forecast for January 2021.

12. The MSE.

13. The MAE.

14. The out-of-sample forecast for February 2021.

15. The out-of-sample forecast for July 2022.

By considering the MSE, critically think of a way to optimise the model by altering the parameters, and report the following values after your optimisation (your answer can be zero if a parameter is not applicable):

16. Alpha.

17. Beta.

18. Gamma.

19. The MSE.

20. The out-of-sample forecast for July 2022.