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Seasonality in Dynamic Regression Models

  • Andrew C Harvey
  • Andrew Scott

This paper examines the implications of treating seasonality as an unobserved component which changes slowly over time. This approach simplifies the specification of dynamic relationships by separating non-seasonal from seasonal factors. We illustrate this approach using the consumption model of Davidson et al (1978) and estimate a stable error correction model between consumption, income and prices over the period 1958-92. More generally, we argue that autoregressive models are unlikely to successfully model slowly changing seasonality, and may confound seasonal effects with the dynamic responses of prime interest. Our approach can be used in a wide range of cases and we show that there is little loss in efficiency even if seasonality is deterministic.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0184.

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Date of creation: Jan 1994
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Handle: RePEc:cep:cepdps:dp0184
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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