The behavior of postwar real U.S. GNP, the inputs to an
aggregate production function, and several formulations of the associated Solow
residuals for the presence of nonlinearities in their generating mechanisms are examined.
Three different statistical tests for nonlinearity are implemented: the
McLeod-Li test, the BDS test, and the Hinich bicovariance test.
We find substantial evidence for nonlinearity in the generating mechanism of
real GNP growth but no evidence for nonlinearity in the Solow residuals.
We further find that the generating mechanism of the labor input series is
nonlinear, whereas that of the capital services input appears to be linear.
We therefore conclude that the observed nonlinearity in real output arises
from nonlinearities in the labor markets, not from nonlinearities in the
technical shocks driving the system. Finally, we investigate the source of
the nonlinearities in the labor markets by examining simulated data from a
model of the Dutch economy with asymmetric adjustment costs.
The estimation of asymmetric adjustment costs for the number of workers and working hours – empirical evidence from Japanese industry data
