The Fundamental Theorem of Exponential Smoothing

Robert G. Brown and Richard F. Meyer
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Robert G. Brown: Arthur D. Little, Inc., Cambridge, Massachusetts
Richard F. Meyer: Arthur D. Little, Inc., Cambridge, Massachusetts

Operations Research, 1961, vol. 9, issue 5, 673-685

Abstract: Exponential smoothing is a formalization of the familiar learning process, which is a practical basis for statistical forecasting. Higher orders of smoothing are defined by the operator S n t ( x ) = (alpha) S n -1 t ( x ) + (1 - (alpha)) S n t -1 ( x ), where S 0 t ( x ) = x t , 0 x t } is of the form x t = n t + (sum) ı = N ı =0 a ı t ı where n t is a sample from some error population, then least squares estimates of the coefficients a, can be obtained from linear combinations of the operators S , S 2 , ..., S N +1 . Explicit forms of the forecasting equations are given for N = 0, 1, and 2. This result makes it practical to use higher order polynomials as forecasting models, since the smoothing computations are very simple, and only a minimum of historical statistics need be retained in the file from one forecast to the next.

Date: 1961
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