9.7 The Use of Dummy Variables in Seasonal Analysis The process of removing the seasonal component from a time series is known as deseasonalization, or seasonal adjustment Use the dummy variables to do decentralization o 1. We assume that the seasonal effect only affects the intercept term and not the slope coefficient --A model with differential intercept but same slope Y=B1+B2D21+B3D3+B4D46+BX1+u1(9.35) the seasonal dummies the ds. are defined as D,,=l if the observation lies in the IInd quarter 0 otherwise D3t=l if the observation lies in the Illth quarter 0 otherwise Dat=l if the observation lies in the IVth quarter 0 otherwise9.7 The Use of Dummy Variables in Seasonal Analysis The process of removing the seasonal component from a time series is known as deseasonalization, or seasonal adjustment. Use the dummy variables to do decentralization: ⚫ 1.We assume that the seasonal effect only affects the intercept term and not the slope coefficient.－－A model with differential intercept but same slope: Yt=B1 +B2D2t + B3D3t+ B4D4t 6 + B5Xt+ut (9.35) the seasonal dummies, the Ds, are defined as: D2t =1 if the observation lies in the IInd quarter =0 otherwise D3t =1 if the observation lies in the IIIth quarter =0 otherwise D4t =1 if the observation lies in the IVth quarter =0 otherwise