Unit roots, polynomial transformations and the environmental Kuznets curve
Working paper
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http://hdl.handle.net/11250/180265Utgivelsesdato
2006Metadata
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- Discussion Papers [1002]
Sammendrag
Abstract:
Time-series regressions including non-linear transformations of an integrated variable are not
uncommon in various fields of economics. In particular, within the Environmental Kuznets Curve
(EKC) literature, where the effect on the environment of income levels is investigated, it is standard
procedure to include a third order polynomial in the income variable. When the income variable is an
I(1)-variable and this variable is also included nonlinearly in the regression relation, the properties of
the estimators and standard inferential procedures are unknown. Surprisingly, such problems have
received rather limited attention in applied work, and appear disregarded in the EKC literature. We
investigate the properties of the estimators of long-run parameters using Monte-Carlo simulations.
We find that the mean of the ordinary least squares estimates are very similar to the true values and
that standard testing procedures based on normality behave rather well.
Keywords: Emissions, Environmental Kuznets Curve, Unit Roots, Monte Carlo Simulations
Utgiver
Statistics Norway, Research DepartmentSerie
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