The Distributed Lag Model Relating Orange Juice Prices to the Orlando

question 4

Essay

The distributed lag model relating orange juice prices to the Orlando weather reported in the text was of the form
%ChgPt = β0 + β1FDDt + β2FDDt-1 + β3FDDt-2 + ...+ β19FDDt-18 + ut
(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:

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