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The small sample properties of the reset test as applied to systems of equations

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Author

Summary, in English

The RESET test for functional misspecification is generalised to cover systems of equations, and the properties of 7 versions are studied using Monte Carlo methods. The Rao F -test clearly exhibits the best performance as regards correct size, whilst the commonly used LRT (uncorrected for degrees-of-freedom), and LM and Wald tests (both corrected and uncorrected) behave badly even in single equations. The Rao test exhibits correct size even in ten equation systems, which is better than previous research concerning autocorrelation tests. The power of the test is low, however, when the number of equations grows and the correlation between the omitted variables and the RESET proxies is small.

Publishing year

2002

Language

English

Pages

909-924

Publication/Series

Journal of Statistical Computation and Simulation

Volume

72

Issue

12

Document type

Journal article

Publisher

Taylor & Francis

Topic

  • Economics

Keywords

  • small
  • tests of functional misspecification
  • systems of equations
  • sample properties
  • Monte Carlo methods

Status

Published

ISBN/ISSN/Other

  • ISSN: 1563-5163