Note: DISH = dishwashers; DISP = garbage disposers; FRIG = refrigerators; WASH = dishwashers; DUR = durable goods expenditure, billions of 1992 dollars.
Source: Business Statistics and Survey of Current Business, Department of Commerce (various issues).
to avoid the dummy variable trap, we are assigning a dummy to each quarter of the year, but omitting the intercept term. If there is any seasonal effect in a given quarter, that will be indicated by a statistically significant t value of the dummy coefficient for that quarter.14
14Note a technical point. This method of assigning a dummy to each quarter assumes that the seasonal factor, if present, is deterministic and not stochastic. We will revisit this topic when we discuss time series econometrics in Part V of this book.
314 PART ONE: SINGLE-EQUATION REGRESSION MODELS
Notice that in (9.7.1) we are regressing Y effectively on an intercept, except that we allow for a different intercept in each season (i.e., quarter). As a result, the dummy coefficient of each quarter will give us the mean refrigerator sales in each quarter or season (why?).
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