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The Box-Cox Methodology: A 26-Year Mistake

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  • Ramirez, Octavio A.
  • Shonkwiler, J. S.

Abstract

The Box-Cox methodology has been extensively applied since it·was first introduced in 1964. This study establishes that the function currently used as a basis for implementing the Box-Cpx methodology is not a valid probability qensity function. The proper density function associated with the random variable underlying the Box-Cox methodology is derived.· Simulation evidence documents that the original Box-cox approach can result in considerable bias.

Suggested Citation

  • Ramirez, Octavio A. & Shonkwiler, J. S., 1990. "The Box-Cox Methodology: A 26-Year Mistake," 1990 Annual meeting, August 5-8, Vancouver, Canada 271037, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea90:271037
    DOI: 10.22004/ag.econ.271037
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    References listed on IDEAS

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    1. Davidson, Russell & MacKinnon, James G, 1984. "Model Specification Tests Based on Artificial Linear Regressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 485-502, June.
    2. Spitzer, John J., 1977. "A simultaneous equations system of money demand and supply using generalized functional forms," Journal of Econometrics, Elsevier, vol. 5(1), pages 117-128, January.
    3. Spitzer, John J, 1982. "A Primer on Box-Cox Estimation," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 307-313, May.
    4. Magee, Lonnie, 1988. "The Behaviour of a Modified Box-Cox Regression Model When Some Values of the Dependent Variable are Close to Zero," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 362-366, May.
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