## Deterministic seasonality

A common practice is to attempt the removal of seasonal patterns via seasonal dummy variables (see, for example, Barsky and Miron, 1989; Beaulieu and Miron, 1991; Osborn, 1990). The interpretation of the seasonal dummy approach is that seasonality is essentially deterministic so that the series is stationary around seasonally varying means. The simplest deterministic seasonal model is

s

yt = 1 bstms + ef (31.14)

s=1

where 5s t is the seasonal dummy variable which takes the value 1 when t falls in season s and et ~ iid(0, о2). Typically, yt is a first difference series in order to account for the zero frequency unit root commonly found in economic time series. When a model like (31...

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