An economist wants to estimate a regression equation relating demand for a product (Y) to its price (X1) and income (X2). It is to be based on 12 years of quarterly data. However, it is known that demand for this product is seasonal; that is, it is higher at certain times of the year than others.,a. One possibility for accounting for seasonality is to estimate the model,y = ?0 + ?1×1 + ?2×2 + ?3×3 + ?4×4 + ?5×5 + ?6×6 + ?,where x3, x4, x5, and x6 are dummy variable values, with,x3 = 1 in first quarter of each year, 0 otherwise,x4 = 1 in second quarter of each year, 0 otherwise,x5 = 1 in third quarter of each year, 0 otherwise,x6 = 1 in fourth quarter of each year, 0 otherwise,Explain why this model cannot be estimated by least squares.,b. For a model that can be estimated is as follows:,y = ?0 + ?1×1 + ?2×2 + ?3×3 + ?4×4 + ?5×5 + ?6×6 + ?,interpret the coefficients on the dummy variables in the model.
We are a professional writing service that provides original papers. Our products include academic papers of varying complexity and other personalized services, along with research materials for assistance purposes only. All the materials from our website should be used with proper references.