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December 1994, Vol. 117, No. 12
Seasonality: economic data and model estimation
What is seasonality? This is a surprisingly difficult question, for which there is no simple answer. At the most basic level, there is the intuition that seasonality is an approximately cyclical pattern in time series that more or less repeats it self each year. Complicating matters is the possibility that the pattern will drift or change in amplitude from year to year.
The consensus among economists is that three basic exogenous factors give rise to seasonality in economic data.1 The first factor is the weather: temperature, hours of daylight, and the likelihood of severe storms. All changes somewhat predictably with the calendar and affects the costs of doing many types business. Second, predictable and regular calendar events, such as Christmas, the Federal tax payment deadline on April 15, and the Independence Day holiday, affect production and consumption decisions. Third, social conventions have an impact on the timing of certain activities. For example, families with school-aged children time their vacations with the school calendar.
Business and consumers smooth over or heighten these exogenous factors as they plan their activities. For instance, a firm might time a shutdown for retooling to accommodate the vacation plans of employees. In response, the firm's suppliers and customers also might shut down at that time, causing what amounts to a seasonal slump in the industry.
In addition, changes in production techniques or preferences can accentuate or diminish seasonal patterns. For example, improvements in transportation between the northeast and California might dampen seasonal patterns in produce prices in the Northeast.
This excerpt is from an article published in the December 1994 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 Svend Hylleberg, Seasonality in Regression (Orlando, FL, Academic Press, Inc., 1986).
Seasonal adjustment of quarterly consumer expenditure series. December 1994.
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