13 Seasonality Suppose you suspect a potential dependent var

13. Seasonality Suppose you suspect a potential dependent variable y exhibits quarterly seasonality. A general model for quarterly data that captures this seasonality would involve regressing y on a set of seasonal dummy variables. Hint: Assume Q2 is the base period Which of the following quarters will be Included in the model as a seasonal dummy variable? Check All that apply. Time Period First quarter Q1 Second quarter Q2 Third quarter Q3 Fourth quarter Q4 Included in Model

Solution

Since Q2 is the base period, the model will include only Q1, Q3, Q4 and the results are compared with Q2. The equation would take the form,
Y = a+b1t+b2q1+b3q3+b4q4
Where “a” is constant, t is trend and betas are respective coefficients. The values of q1, q3, q4 are interpreted higher or lower than q2 values