State the merits and limitations of the method of least squares. – InterviewSolution

1.

State the merits and limitations of the method of least squares.

Answer»

The merits and limitations of the least squares method of fitting the linear trend are as follows:

Merits:

This method of determining the trend of the time series is mathematically more compact than the graphical method.
In this method the estimates of the trend values for all the terms of the time series can be obtained.
From the equation of linear trend of the time series, we can forecast the variable quantity y_t for any value of t.

Limitations:

This method of determining the trend of the time series is difficult than the graphical method from the calculation view point.
If there is lack of linear trend in the time series, this method is not useful for fitting the linear trend.

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