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What is Exponential Smoothing?

This is a very popular scheme to produce a smoothed Time Series. Whereas in Single Moving Averages the past observations are weighted equally, Exponential Smoothing assigns exponentially decreasing weights as the observation get older.

In other words, recent observations are given relatively more weight in forecasting than the older observations.

In the case of moving averages, the weights assigned to the observations are the same and are equal to 1/N. In exponential smoothing, however, there are one or more smoothing parameters to be determined (or estimated) and these choices determine the weights assigned to the observations.




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