* Testing for model misspecification: the RESET test * Reference: Section 8.6.2 of * R. Carter Hill, William E. Griffiths and George G. Judge, * Undergraduate Econometrics, Second Edition, Wiley. SAMPLE 1 30 READ (TAB8-3.shd) Q PB PL PR M / SKIPLINE=1 * Transform the data to logarithms GENR LQ=LOG(Q) GENR LPB=LOG(PB) GENR LPL=LOG(PL) GENR LPR=LOG(PR) GENR LM=LOG(M) * Estimate a log-log demand function. OLS LQ LPB LPL LPR LM / LOGLOG * The DIAGNOS command generates diagnostic test statistics for * the previous OLS command. The RESET option reports: * - RESET(2) = RESET test obtained by augmenting the model with * the squares of the predictions. * - RESET(3) = RESET test obtained by augmenting the model with * the squares and cubes of the predictions. DIAGNOS / RESET * Estimate a linear demand function. OLS Q PB PL PR M * Obtain the RESET test results (Table 8.4, p.188) DIAGNOS / RESET STOP