Most business respond differently during the economic expansion and contraction

Question

Most business respond differently during the economic expansion and contraction of business cycles. What is the best way to consider business cycles in a regression model of company performance?

a) use only internal company data for regression variables to show how the company reacts to cycles

b) include more cycle related macroeconomic data in the model to account for cycle effects

c) adjust the regression model forecast with a single cycle factor

d) since cycles are not consistant in terms of length and severity ignore them in regression

e) develop a random number generated series for a business cycle variable to include in the regression model

Explanation / Answer

The best way to consider business cycle in the regression model is to develope a random number series for a business cycle variable included in the regression.

Hence,

Option E is correct.

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