The following table shows six years of average annual food price index (May to April data):
Year Annual Food Price Index
(a) Forecast the average annual food price index for all years from 2008 to 2011. Use a three-year weighted moving average with weights of 0.5, 0.3, and 0.2. Use the largest weight with the most recent data.
(b) Forecast the average annual food price index using exponential smoothing with α = 0.7 for all years from 2006 to 2011. Use the rate for 2005 as the starting forecast for 2005.
(c) Which of the methods in parts (a) and (b) produces better forecasts for the three years from 2008 to 2010? Answer on the basis of mean square error ('MAD).
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