Munich Personal RePEc Archive

With or Without U? - The appropriate test for a U shaped relationship.

Lind, Jo Thori and Mehlum, Halvor (2007): With or Without U? - The appropriate test for a U shaped relationship.

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Abstract

Non-linear relationships are common in economic theory, and such relationships are also frequently tested empirically. We argue that the usual test of non-linear relationships is flawed, and derive the appropriate test for a U shaped relationship. Our test gives the exact necessary and sufficient conditions for the test of a U shape in both finite samples and for a large class of models.

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