Box-Cox test for functional form

Box-Cox test for functional form - The Box-Cox test for...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
The Box-Cox test for functional form: (See GHJ: pp. 345-346.) There are two candidate models: a linear form and a log-log form. The latter would come from a Cobb-Douglas specification, but you could also use a semi-log model – the key is that the dependent variable is in natural log form: (1) 01 1 2 2 ii i i YX X u β ββ =+ + + (2) 1 2 2 ln ln ln i i X u α αα + + Estimate each model, save the residual sums of squares: RSS L is the residual sum of squares from the linear model, and RSS LL is the residual sum of squares for the log model. Transform the residual sum of squares for the linear model: 2 L G RSS Y , where 12 n Gn YY Y Y =⋅ " Calculate the test statistic: 2 2 (1) ln 2 L G LL RSS Y n l RSS χ ⎛⎞ ⎜⎟ = ⎝⎠ Or: () 2 2 (1) ln ln 2 L LL G n RSS lR S S Y =− Compare – the key is to check the terms within the absolute value bars, because the test
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/08/2011 for the course ECON 702 taught by Professor Staff during the Spring '08 term at UMass (Amherst).

Ask a homework question - tutors are online