Suppose we want to investigate the money spending behavior in the US, by using the following model
M2t = fio + PiGDPt + fcFFRt + fijnflationt + st
C P l t — C P l t — 4 where ?2: money supply, GDP: Gross Domestic Product, FFR: interest rate, lnflation= — — * 100
and CPI: Consumer Price Index.
We expect that f)i > 0, < 0, /?? > 0
We want to test the seasonality effect to see if the US money supply is larger during the Thanksgiving and Christmas
holidays (last quarter of the year).
The quarterly dummy variables are defined as
51 = 1 for Quarter 1, = 0 otherwise S3 =1 for Quarter 3, = 0 otherwise
52 = 1 for Quarter 2, = 0 otherwise S4 =1 for Quarter 4, = 0 otherwise
After regressing without the dummy variables we get the following results:
Dependent Variable: ?2
Method: Least Squares
Date: 09/05/14 Time: 14:06
Sample (adjusted): 1991Q1 2008Q4
Included observations: 72 after adjustments