Problem 1. Consider the following univariate models with the OLS estimates for 1990Q1-

2012Q4. Note that Y, is the sales of a particular company, D1, D2, D3, and D4 are seasonal dummies,

and "Time" is a time trend.

a. What are the 3 possible components of a time series? Do these models include all these possible

components? Clearly explain.

b. Given the above estimates, which model do you prefer for forecasting? Explain with enough

reasoning.

c. Under what condition(s), your preferred model is correctly specified? Explain clearly.

d. Under what condition(s), your preferred model is not correctly specified? How do you improve

the specification of the model? Explain clearly.