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<br /> <br />2.3 HISTORICAL TREND ANALYSIS <br />Historical trend analysis methods range from least-squares curve <br />fitting to exponential smoothing and adaptive filtering techniques. If the <br />projection utilizes an extensive historical time series, then trend analysis <br />methods can prove quite satisfactory for projecting future price trends. <br />The use of projections based on historical price trends has two <br />advantages. First, in that the historical prices reflect producer costs <br />and desired return,9 they represent the balance between the supplier's <br />desire for higher profits and consumer's desire for low costs. Second, a <br />sufficiently long-term history will reflect the impact of those shocks which <br />a simulation model cannot by its nature predict. Because of this, any <br />projection of long-term historical price trends will implicitly include future <br />shocks. Therefore, the use of historic trends minimizes assumptions <br />about future national and regional economic behavior. Only one assumption <br />is needed: the future will be statistically similar to the past. <br />On the other hand, there are two critical shortcomings of this method. <br />First, it tends to result in long-range forecasts based on average trends. <br />As a result, the method is poor in predicting near-term behavior. Addi- <br />tionally, the price at any single time is most likely not along the line of <br />average values. The second major disadvantage of the historical trend <br />projection method is its inability to see when one historic epoch has ended <br />and a new one begun. While the modeler can be accused of placing too <br />great an emphasis on recent events--regarding the present as a unique <br />time in historyuand projecting a future based on the present, the historian <br />can be accused of blindly ignoring reality and regarding the present as <br />simply another of a series of violent movements about the long-term <br />trend. <br /> <br />2.4 REFERENCES <br /> <br />1. "Energy: An Uncertain Future," prepared for Committee on <br />Energy and Natural Resources, United States Senate, 95-157, <br />US Government Printing Office, Washington, D. C., December <br />1978. <br /> <br />2-4 <br />