Which of the following is not true of seasonal dummy variables?
A) Their values are either 0 or 1.
B) Their number should be one less than the number of seasons.
C) They are used to describe the seasonality in quarterly, monthly, or other increment time series.
D) Their number should equal the number of seasons.

Question

Quizplus · Accepted Answer

Seasonal dummy variables are used to model the effects of seasonality in time series data, and their number should always be one less than the total number of seasons to avoid the dummy variable trap, which occurs when dummy variables are highly correlated. By excluding one season as a baseline, the model avoids perfect multicollinearity among the dummy variables.

Which of the Following Is Not True of Seasonal Dummy