Use of Some Exponential Smoothing Models in Forecasting Some Food Crop Prices in the Upper East Region of Ghana

Abstract

The study was designed to compare the performance of Holt-Winters multiplicative method with Double exponential smoothing method in forecasting future prices of some selected food crops in the Upper East Region of Ghana and also to examine the trend or direction of movement of the prices.

The conclusion drawn from the study was that the prices have been rising since January 1992, decreasing sometimes but not below the January 1992 prices. This is an indication that all things being equal, the prices of the selected food crops will keep rising (rising trend).

Results from the study revealed that the double exponential smoothing performed better, in four of the five selected food crops in which trend was present, than the Holt-Winters multiplicative method. That is the double exponential model forecasted prices which were much closer to the observed values than the Holt-Winters model. However in the case of the prices of groundnut in which both seasonality and trend were present the Holt-Winters model performed better than the double exponential smoothing. This is a confirmation of the norm that the Holt-Winters model performs better when both trend and seasonality are present whilst the double exponential smoothing performs better when trend is present in a set of data (Minitab User’s Guide 2,).

Results from the study also showed that the double exponential smoothing model performs better when given the optimal values. However the optimal values given by the study lie outside the suggested range (0.70 and 0.95) for exponential smoothing methods. The study revealed that in practice the discount factors could lie outside the suggested range for exponential smoothing.

From the study it will be recommended that double exponential smoothing models be used for modelling and forecasting the prices of cereals crops  in which trend is present whilst the Holt-Winters multiplicative method is used for the leguminous crops in which both trend and seasonality are present in the Upper East Region of Ghana.