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With or Without U? The Appropriate Test for a U‐Shaped Relationship

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  • Jo Thori Lind
  • Halvor Mehlum

Abstract

Nonlinear relationships are common in economic theory, and such relationships are also frequently tested empirically. We argue that the usual test of nonlinear 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 finite samples in a large class of models.

Suggested Citation

  • Jo Thori Lind & Halvor Mehlum, 2010. "With or Without U? The Appropriate Test for a U‐Shaped Relationship," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(1), pages 109-118, February.
    • Handle: RePEc:bla:obuest:v:72:y:2010:i:1:p:109-118
    DOI: 10.1111/j.1468-0084.2009.00569.x
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    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General

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