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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Paper provided by Oslo University, Department of Economics in its series Memorandum with number
21/2007.
Find related papers by JEL classification: C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
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