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:

Credit Sales

Sales transactions where the payment is deferred, and goods or services are provided on credit.

Raw Materials Purchases

The total cost of raw materials bought for use in the production of goods or products during a specific accounting period.

Accounts Payable

Liabilities or amounts owed by a company to suppliers for purchases made on credit.

Raw Materials Purchases

Transactions related to buying the basic materials that are needed to manufacture goods.