In this paper, we examine the interaction between data transformation and the empirical evidence obtained when testing for (non-)linearity. For this purpose we examine nonlinear features in 64 monthly and 53 quarterly US macroeconomic variables for a range of Box–Cox data transformations. Our general finding is that evidence of nonlinearity is not independent of the data transformation. Results of simulation experiments substantiate this finding.

Computational Statistics & Data Analysis
Erasmus Research Institute of Management

Franses, P. H., & de Bruin, P. (2002). On data transformations and evidence of nonlinearity. Computational Statistics & Data Analysis, 40(3), 621–632. doi:10.1016/S0167-9473(02)00054-3