(solution) Consider the first differences of quarterly log US industrial production, over the period

(solution) Consider the first differences of quarterly log US industrial production, over the period

Consider the first differences of quarterly log US industrial production, over the period 1963.1–2002.4. Create 4 quarterly dummies D s , t and estimate the model y t = α + μ 1 D 1 , t + μ 2 D 2 , t + μ 3 D 3 , t + μ 4 D 4 , t + ε t . What happens? Why? What happens if α is restricted to 0? What happens if μ 1 is restricted to 0? How can the parameters be interpreted in these two cases?