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A Note On The Box-Cox Transformation Under Heteroskedasticity

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  • Blaylock, James R.
  • Salathe, Larry E.
  • Green, Richard D.

Abstract

The Box-Cox transformation (BCT) has been frequently used as both a flexible functional form and as a decision device to distinguish among alternative model specifications. Most researchers have failed to recognize that the BCT when applied to the dependent variable can compensate for heteroskedasticity. This paper investigates a new procedure which estimates both the BCT parameters and the analytic form of heteroskedasticity. Results from the new procedure are compared to estimates obtained from the traditional method of estimating BCT models. Comparisons indicate that proper specification of the error variance can influence the magnitude of BCT parameters and alter the results of hypothesis testing.

Suggested Citation

  • Blaylock, James R. & Salathe, Larry E. & Green, Richard D., 1980. "A Note On The Box-Cox Transformation Under Heteroskedasticity," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 5(2), pages 1-8, December.
    • Handle: RePEc:ags:wjagec:32394
    DOI: 10.22004/ag.econ.32394
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    References listed on IDEAS

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    1. Gaudry, Marc J. I. & Dagenais, Marcel G., 1979. "Heteroscedasticity and the use of Box-Cox transformations," Economics Letters, Elsevier, vol. 2(3), pages 225-229.
    2. Chang, Hui-shyong, 1977. "Functional Forms and the Demand for Meat in the United States," The Review of Economics and Statistics, MIT Press, vol. 59(3), pages 355-359, August.
    3. Appelbaum, Elie, 1979. "On the Choice of Functional Forms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 449-458, June.
    4. Kulshreshtha, Surendra N., 1979. "Functional Form Specification In The Quarterly Demand For Red Meats In Canada," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 4(2), pages 1-10, December.
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    1. Blaylock, James R. & Smallwood, David M., 1983. "Box-Cox Transformations And Error Term Specification In Demand Models," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 8(1), pages 1-8, July.
    2. Prince Etwire & David Fielding & Victoria Kahui, 2017. "The impact of climate change on crop production in Ghana: A Structural Ricardian analysis," Working Papers 1706, University of Otago, Department of Economics, revised Apr 2017.

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