Seasonal Dummies Economic Project
You will need Minitab for this project. I will also post the excel file that you will need for this project below. All the questions should have a good narrative and pictures from the Minitab.
I will send you an excel file. The data can be copied to Minitab as it is and then you cal solve it through Minitab.All the stepwise instructions are below. I can also send you the lectures if you need more help.
- Incorporate seasonal dummies and trends into your model. Identify if you have seasonality, trend by checking their significance? Is that consistent with your previous findings?
- Check all your explanatory variables check for multicollinearity again (scatter plots, VIF, correlations). If you have a sign switch, correct the situation by throwing one (and if necessary more) of the variables out of the model. Consider R-squared or adj R-squared when making the decision. Your model should ONLY have variables with a correct sign that have the highest combined adj-R-squared.
- Using the scatter plots you generated, identify any nonlinear relationships between Y and X variables.
Try to correct nonlinearity through transformation (page 233-237). If it works, keep the transformed version of the variable. Otherwise, use the original variable, acknowledge the nonlinearity and move on to the next test. Use 2 different transformations (ex: Log X, 1/X, X^2 or SQRT(X)).
- Once you correct for non linearity and multi collinearity, check for auto correlation using the DW test. Do you have autocorrelation? Correct for autocorrelation if you have any. (HINT: You may have to check for sign switch again)
- Once you corrected for all possible problems, analyze the resulting residuals (4-in-11 plot in MINITAB)
- Once you have your final model, use the forecasted X values (in PP2) and forecast your Y variable for 10 periods. Beware: if you transformed any variables, you may have to adjust your forecasts.