Use of dummy variables in seasonal analysis:

Many economic time series based on monthly or quarterly data exhibit seasonal patterns. For example the sale of woolens during the winter months, sales of departmental  stores during the  festive season, sale of soft drinks in the summer months, sale of refrigerators and air-conditioners in the summer season etc are some of  the examples of  time  series that  show seasonal pattern.  It is  often desirable to eliminate the seasonal component  of  such  times-series. The process  of removing/eliminating the  seasonal  factor is known as deseasonalisation or seasonal adjustment and the adjusted time series thus obtained is called the seasonally adjusted or deseasonalised times series.

There are a number of ways of deseasonalising a time series. Dummy variables can also be  effectively used  for deseasonalising a time  series. We  Shall  in  this section deal with  the use  of dummy variable approach  in  deseasonalisation of time series.