Under the multiple regression lecture, we assume that all the series are stationary at level
(that is, the order of integration of each of the series is zero, I(0))2. If we relax this assumption
and consequently allow for unit roots in the variables, how do we deal with such a scenario?
In general, this would require a different treatment from a conventional regression with
stationary variables at I(0), which has been covered so far.
Linearity: That there is a linear relationship between the
dependent variable (MD) and the independent variables (GDP and
INT).The violation of this assumption may imply that the model
under consideration is non-linear or incorrectly specified.
Lateef O. Akanni and Kazeem O. Isah
Measuring and Comparing the Size of Economies Across Time and Space: A Review of ICPFramework, Methodology and Research Agenda