New research challenges traditional economic models, revealing hidden nonlinear patterns.
The article explores different types of models to understand how variables interact in economics. It introduces a method to estimate and test these models, focusing on non-linear relationships over time. The researchers developed tests to check if these relationships are significant, linear, or additive. They found that these tests work well and can be applied to real-world data, like US Federal interest rates. The study suggests that assuming linearity in economic models may not always be accurate.