Optimal Properties of Exponentially Weighted Forecasts

Optimal Properties of Exponentially Weighted Forecasts,10.1080/01621459.1960.10482064,Journal of The American Statistical Association,John F. Muth

Optimal Properties of Exponentially Weighted Forecasts   (Citations: 220)
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The exponentially weighted average can be interpreted as the expected value of a time series made up of two kinds of random components: one lasting a single time period (transitory) and the other lasting through all subsequent periods (permanent). Such a time series may, therefore, be regarded as a random walk with “noise” superimposed. It is also shown that, for this series, the best forecast for the time period immediately ahead is the best forecast for any future time period, because both give estimates of the permanent component. The estimate of the permanent component is imperfect, and so the estimate of a regression coefficient is inconsistent in a relation involving the permanent (e.g. consumption as a function of permanent income). Its bias is small, however.
Journal: Journal of The American Statistical Association - J AMER STATIST ASSN , vol. 55, no. 290, pp. 299-306, 1960
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