Question

Respond to these questions:

• Explain what dummy variables are and how they can be used to account for seasonality.

• Please cite at least one academic article (APA or MLA format).

• Select a product or service of your choice and explain how you would use dummy variables to measure seasonality in the sales of that product or service.

• Explain the expected sign of each dummy variable.

Answer 1

1)Dummy Variables served two purpose:

i) Since , they in effect permitted correlation of only one quarter at a time, they made possible avoidance of a comparison of total or overall seasonal patterns.

ii)They served to explain any variations in data for the first three quarters that were unexplained by specific independent variables.

2)  https://otexts.com/fpp2/useful-predictors.html

3)  To forecast the value of future beer production. In this model this data using a regression model with a linear trend and quarterly dummy variables,yt=β0+β1t+β2d2,t+β3d3,t+β4d4,t+εt,

4) where di,t=1 if it is in quarter i and 0 otherwise. The first quarter variable has been omitted, so the coefficients associated with the other quarters are measures of the difference between those quarters and the first quarter.