The Distributed Lag Model Relating Orange Juice Prices to the Orlando

question 22

Essay

The distributed lag model relating orange juice prices to the Orlando weather reported in the text was of the form
%ChgP_t = β₀ + β₁FDD_t + β₂FDD_t-1 + β₃FDD_t-2 + ... + β₁₉FDD_t-18 + u_t
(a)Suppose that an agricultural economist tells you that a freeze in December is more harmful than a freeze in the other months. How would you modify the regression to incorporate this effect? How would you test for this December effect?
(b)The same economist tells you that the damage caused by freezes is not well captured by the FDD variable. She says that a single day temperature with a temperature of 24° is more damaging than 8 days with a temperature of 31°. How would you modify the regression to incorporate this effect?

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Definitions:

FICA-Medicare

Part of the U.S. payroll tax that goes towards Medicare, providing health insurance for individuals over 65 and for certain younger people with disabilities.

Withheld

Refers to a portion of an employee's wages not paid directly to them but retained by the employer for income tax or other purposes.

Matched By Employer

Typically refers to contributions to retirement plans or other benefits that an employer makes, matching the employee’s contribution to a certain percentage.

Quick Ratio

A measure of a company's ability to meet its short-term obligations using its most liquid assets, excluding inventory.