Suppose that a researcher wishes to test for calendar (seasonal) effects using a dummy variables approach. Which of the following regressions could be used to examine this?
(I) A regression containing intercept dummies
(ii) A regression containing slope dummies
(iii) A regression containing intercept and slope dummies
(iv) A regression containing a dummy variable taking the value 1 for one observation and zero for all others
A) (ii) and (iv) only
B) (i) and (iii) only
C) (i), (ii), and (iii) only
D) (i), (ii), (iii), and (iv).

Question

Quizplus · Accepted Answer

Intercept dummies can capture the average seasonal effect, slope dummies can capture how the effect of another variable changes with the season, and a combination of both can provide a more detailed seasonal analysis. Option (iv) is not suitable for seasonal effects as it only differentiates one observation from all others, not capturing any seasonal pattern.

Suppose That a Researcher Wishes to Test for Calendar (Seasonal)