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Rational seasonality

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  • Travis D. Nesmith

Abstract

Seasonal adjustment usually relies on statistical models of seasonality that treat seasonal fluctuations as noise corrupting the `true' data. But seasonality in economic series often stems from economic behavior such as Christmas-time spending. Such economic seasonality invalidates the separability assumptions that justify the construction of aggregate economic indexes. To solve this problem, Diewert(1980,1983,1998,1999) incorporates seasonal behavior into aggregation theory. Using duality theory, I extend these results to a larger class of decision problems. I also relax Diewert's assumption of homotheticity. I provide support for Diewert's preferred seasonally-adjusted economic index using weak separability assumptions that are shown to be sufficient.

Suggested Citation

  • Travis D. Nesmith, 2006. "Rational seasonality," Finance and Economics Discussion Series 2007-04, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2007-04
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    References listed on IDEAS

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    4. Diewert, Erwin, 2007. "Index Numbers," Economics working papers diewert-07-01-03-08-17-23, Vancouver School of Economics, revised 31 Jan 2007.
    5. Michael C. Lovell, 1963. "Seasonal Adjustment of Economic Time Series and Multiple Regression," Cowles Foundation Discussion Papers 151, Cowles Foundation for Research in Economics, Yale University.
    6. Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, vol. 46(4), pages 883-900, July.
    7. Richard G. Anderson & Barry E. Jones & Travis D. Nesmith, 1996. "Monetary aggregation theory and statistical index numbers," Working Papers 1996-007, Federal Reserve Bank of St. Louis.
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    Keywords

    Seasonal variations (Economics) ; Consumer behavior;

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