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I have sales data for last four year. I want to divide my data in two parts so that I can have base volume and promotional volume. I am thinking to use " Decomposition of Time Series " approach such that the base volume would be trend component and seasonal and error component would be promotional volume.

Is this method would be good? Is there any other method/way to break down the data in two parts.

P.S : promotional volume is the volume that comes from promotions during festival seasons.

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Promotional volume that arises as a result of festival seasons is better to be handled by dummy variables. The error term is the reminder after trend, seasonality and such dummy.

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  • $\begingroup$ Thanks for you reply...How to define dummy variables..can you please elaborate it more...it will be very helpful. Thank you $\endgroup$ – Arushi Dec 24 '13 at 21:15
  • $\begingroup$ At times you know there were festival events that might have affected the series you put binary variable - 1 if there was a feast, 0 otherwise. Then you will perform regression with that variable included. It will estimate the impact of the festival event on the sales. $\endgroup$ – Germaniawerks Dec 24 '13 at 21:21
  • $\begingroup$ so you mean , the dependent variable would be my actual sales data and independent would be the the binary variables like you have defined and no other independent variables...Please reply as I like your approach... Thanks $\endgroup$ – Arushi Dec 24 '13 at 21:34
  • $\begingroup$ of the form e.g.: y(t) ~ a + bsin(2*pit/365) + ccos(2*pit/365) + d*(IF festival at time t THEN 1 ELSE 0) $\endgroup$ – Germaniawerks Dec 24 '13 at 21:40
  • $\begingroup$ Why these sine and cos terms and why are you dividing by 365, I have monthly data for last 4 years... $\endgroup$ – Arushi Dec 24 '13 at 21:46

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