Iopic Time Series Finite Distributed Lag Model (FDL)
Use the FDL model data located in the Final Module of the Canvas to answer the following question: Suppose we are studying the impact of a certain policy (e.g., a marketing campaign) on sales over time. We are interested in how the implementation of this policy in a given period affects sales not only in the same period but also in subsequent periods. We will model this effect up to the third lag t-1, t-2, t-3. The dataset will contain the following variables:
Year: The year of observation.
Policy: A binary variable indicating whether the policy was implemented in that year (1 if implemented, 0 otherwise).
Sales: The amount of sales in that year.
The Finite Distributed Lag model will be specified as follows:
Sales = β0 + β1*Policy + β2*Policy-1 + β3*Policy-2 + β4*Policy-3 + u
where:
Sales is the sales in year t.
Policy, Policy-1, Policy-2, and Policy-3 are the current and lagged values of the policy variable.
β0, β1, β2, β3, and β4 are the coefficients to be estimated.
u is the error term.
This dataset includes the original Policy variable and its lags up to three years (Policy, Lag1, Policy_Lag2, Policy_Lag3). The Sales column represents the sales for each year.
A. Perform the FDL regression analysis on this dataset and interpret the results.
B. Provide your Python Codes.