Contents

Introduction
1 Smoothing and Its Alternatives
Regression in Forecasting
Curvilinear Relationships
Piecewise Regression
Polynomial Regression
TREND() and LINEST()
Using the Chart’s Trendline
Regression or Smoothing?
Comparing Smoothing with Regression with Forecasting Errors
Additional Rationales for Smoothing
Pushing the Forecast Horizon
2 Diagnosing Trend and Seasonality
Inside the Autocorrelation
The Magnitude and the Direction of a Correlation
The Definitional Formula for Pearson’s Correlation
Autocorrelation and Averages
Looking at Individual Cases
Testing for Trend in the Observations
Understanding the Meaning of ACFs
Interpreting the ACFs
Using the ACF Add-in
Testing All the ACFs at Once
Testing for Seasonality in a Time Series
Removing Trend
Independent Residuals
Analyzing the Regression with LINEST()
Applying the Models Comparison Approach
 Time Series Diagnostics and the Analysis of Covariance
3 Working with Trended Time Series
Smoothing: The Basic Idea
The Smoothing Equation’s Error Correction Form
Using Excel’s Solver to Choose Alpha
The Equation’s Smoothing Form
About the Smoothing Approaches to Forecasting
A Time Series’ Pattern
Additive and Multiplicative Models
Initializing Values
Initializing Versus Validation
Terminology Problems
More Smoothing Terminology
Dealing with Trend: Holt’s Linear Exponential Smoothing
Dealing with Trend by Differencing
Forecasting the Differences
Using Holt’s Linear Exponential Smoothing
Forecasting a Level
Forecasting a Trend
Forecasting the Next Level and the Next Trend
Extending the Forecast
Optimizing the Constants
Going Beyond the Next-Step-Ahead Forecast
Validating the Results
4 Initializing Forecasts
Setting Initial Values
Getting an Initial Forecast with Backcasting
Getting an Initial Forecast with Optimization
Initial Forecast in Simple Exponential Smoothing
Initial Forecasts with Holt’s Method
Understanding the Relationship Between Holt’s Method and Linear
 Regression
About Multistart and Solver
Initializing with Regression
Arranging for Curvilinear Regression
Deriving the Regression Equation
Confirming the Regression Equation
Deciding to Use Polynomial Regression
5 Working with Seasonal Time Series
Simple Seasonal Averages
Identifying a Seasonal Pattern
Calculating Seasonal Indexes
Forecasting from Simple Seasonal Averages: No Trend
Simple Seasonal Averages with Trend
Evaluating Simple Averages
Moving Averages and Centered Moving Averages
Using Moving Averages Instead of Simple Averages
Understanding Specific Seasonals
Aligning the Moving Averages
Centered Moving Averages with Even Numbers of Seasons
Detrending the Series with Moving Averages
Linear Regression with Coded Vectors
About Effect Coding and Regression
Effect Coding with Seasons
Setting Up the Coded Vectors
Dummy Coding
Simple Seasonal Exponential Smoothing
About the Level Smoothing Formulas
About the Season Smoothing Formulas
Dealing with the End of the Time Series
Holt-Winters Models
Initializing the Forecasts
 Starting the Forecasts Earlier
6 Names, Addresses, and Formulas
We Interrupt This Program...
Implicit Intersections
The Relative Range Name
Establishing Names for Forecasting Formulas
Establishing the Fixed Range Names
Establishing the Mixed Range Names
Using the Names in Forecasting Formulas
Interpreting the Formula for Series Level
Interpreting the Formula for the Seasonal Effect
Interpreting the Forecast Formula
Deriving the Error Correction Formulas
The Level Equation
The Trend Equation
The Season Equation
Demonstrating the Formulas on the Worksheet
Deriving the Formulas on the Worksheet
Deriving Error Correction of Level and Season Effects
Deriving Error Correction of Level and Trend
Named Ranges for Holt-Winters Models
Estimating the Series Level in Holt-Winters Models
Estimating the Current Trend
Estimating the Current Seasonal Effect
Error Correction Formulas for Holt-Winters Models
7 Multiplicative and Damped Trend Models
About Multiplicative Models
Additive Models and Multiplicative Models
Why Use an Additive Model?
Multiplicative and Additive Models Compared
 Comparing the Level Estimates
Comparing the Estimates of Seasonal Effects
Producing the Next Forecast
Using the Error Correction Formulas
Additive and Multiplicative Seasonal Models in Holt-Winters Analysis
Holt-Winters Additive Models Revisited
Multiplicative Holt-Winters Models
Changing the Initial Seasonal Estimates
Modifying the Level and Seasonal Smoothing Formulas
Modifying the Trend Smoothing Formula
The Multiplicative Model with Error Correction Formulas
Damped Trend Forecasts
Formulas for the Damped Trend
Implementing the Damped Trend on the Worksheet
Index