The estimated regression equation is y_t = 448 + 12t + 18 Qtr1 - 26 Qtr2 + 3 Qtr3. The regression model has three quarterly binaries. The model was fitted to 12 periods of quarterly data starting with the first quarter. Why is there no fourth quarterly binary for Qtr4? A)Because the researcher made a mistake. (We must include a binary for each quarter.) B)Because it is unnecessary. (Its value is implied by the other three binaries.) C)Because the fourth quarter binary is assumed to be the same as the first quarter. D)Because there is no seasonality in the fourth quarter in most time series.

Question

Quizplus · Accepted Answer

The fourth quarterly binary is unnecessary because its value is implied by the other three binaries. If all three of the other quarterly binaries are equal to zero, then the observation is from the fourth quarter. Therefore, including a separate binary for the fourth quarter would result in perfect multicollinearity.

The Estimated Regression Equation Is Yt = 448 + 12t

The Estimated Regression Equation Is Y_t = 448 + 12t