Each week about 100 million customers—nearly one-third of the U.S. population—visit one of Walmart’s U.S. stores. How does Walmart’s revenue relate to the state of the economy in general? Before the financial crisis of 2009, Walmart reported sales each month, but since then it has switched to quarters. Here’s a regression table predicting Walmart’s monthly revenue ($Billion) from the end of 2003 through the start of 2007 from the Consumer Price Index (CPI), and a scatterplot of the relationship.
A scatterplot can give us some clues as to why they turned away from monthly reporting.
a) The points plotted with x are the December values. We can construct a variable that is “1” for those four values and “0” otherwise. What is such a variable called?
Here’s the resulting regression.
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b) What is the interpretation of the coefficient of the constructed variable December?
c) What additional assumption is required to include the variable December in this model? Is there reason to believe that it is satisfied?
