Testing the Semiparametric Box-Cox Model with the Bootstrap

U of Aarhus, Economics Working Paper No. 2002-11

39 Pages Posted: 26 Aug 2002

See all articles by N. Eugene Savin

N. Eugene Savin

University of Iowa - Henry B. Tippie College of Business - Department of Economics

Allan Wurtz

Aarhus University - Department of Economics and Business Economics

Abstract

This paper considers tests of the transformation parameter of the Box-Cox model when the distribution of the error is unknown. Monte Carlo experiments are carried out to investigate the rejection probabilities of the GMM-based Wald and Lagrange Multiplier (LM) tests when the null hypothesis is true. The results show that the differences between empirical and nominal levels can be large when asymptotic critical values are used. In most cases, the bootstrap reduces the differences between the empirical and nominal levels, and, in many cases, essentially removes the distortions in levels that occur with asymptotic critical values. Experiments are also carried out to investigate the ability of the bootstrap to provide improved finite-sample critical values with Wald tests based on the semiparametric estimation procedure recently developed by Foster, Tian and Wei (2001).

Keywords: Botstrap, Box-Cox transformation, GMM, Lagrange Multiplier Tests, Power, Prepivoting, Wald Tests

JEL Classification: C13, C14

Suggested Citation

Savin, Nathan Eugene and Wurtz, Allan, Testing the Semiparametric Box-Cox Model with the Bootstrap. U of Aarhus, Economics Working Paper No. 2002-11, Available at SSRN: https://ssrn.com/abstract=325981 or http://dx.doi.org/10.2139/ssrn.325981

Nathan Eugene Savin

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

108 Pappajohn Building
Iowa City, IA 52242
United States
319-335-0855 (Phone)

Allan Wurtz (Contact Author)

Aarhus University - Department of Economics and Business Economics ( email )

Universitetsparken
Building 350
DK-8000 Aarhus C
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

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