New approach separates seasonal factors for more accurate economic predictions.
Seasonality in dynamic regression models can be simplified by treating it as a slowly changing unobserved component. By separating seasonal factors from non-seasonal ones, we can better understand the relationship between consumption, income, and prices. Autoregressive models may not effectively capture slowly changing seasonality, leading to confusion between seasonal effects and dynamic responses. The approach used in this study shows that even if seasonality is deterministic, there is little loss in efficiency.