A time series regression equation for a surfboard manufacturing company in Australia is given below: Y = 35 + 4Q₁ + 0.5Q₃ + 8Q₄ + 3t With t in quarters and the origin is December 2010 and Q₁ is the indicator variable for March, Q₃ is the indicator variable for September and Q₄ is the indicator variable for December. Which of the following statements is correct? A) The overall general movement of number of surfboards sold by this company is positive because the coefficients of the indicator variables are positive. B) The overall general movement of number of surfboards sold by this company is positive because the intercept is positive. C) The overall general movement of number of surfboards sold by this company is positive because the coefficient of time t is positive. D) None of these choices are correct.

Question

Quizplus · Accepted Answer

The coefficient of time t is positive, which shows that the number of surfboards sold is increasing over time. The coefficients of the indicator variables only show the effect of specific months on the number of surfboards sold, but do not indicate the overall trend. The intercept being positive only means that there is a minimum level of number of surfboards sold even in the absence of any other explanatory variables.

A Time Series Regression Equation for a Surfboard Manufacturing Company