Exploring nonlinearity with random field regression

Abstract

Random field regression models provide an extremely flexible way to investigate nonlinearity in economic data. This article introduces a new approach to interpreting such models, which may allow for improved inference about the possible parametric specification of nonlinearity.

Acknowledgement

The authors are grateful to a referee for helpful comments. The views expressed in this article do not necessarily reflect those of the European Central Bank or its members.

Notes

¹ Notable exceptions include Hamilton (2003) and Kim et al. (2005).

² For an excellent survey of issues relating to PPP, see Taylor and Taylor (2004) and Taylor (2006).