* PS6.10, using DATA4-8, for LM test application in Example 6.7.
read(data4-8) sub home inst svc tv age air y
*   First generate squared variables.  
genr sq_home=home*home
genr sq_inst=inst*inst
genr sq_svc=svc*svc
genr sq_tv=tv*tv
genr sq_age=age*age
genr sq_air=air*air
genr sq_y=y*y
* estimate basic model and save residuals as ut
ols sub home inst svc tv age air y / resid=ut 
* estimate auxiliary regression 
ols ut home inst svc tv age air y sq_home sq_inst sq_svc sq_tv &
 sq_age sq_air sq_y  
* compute LM test statistic
genr LM = $n*$r2
* compute pvalue
distrib LM / type=chi df=7
* from auxiliary regression add variables to basic model 
ols sub home inst svc tv age air y sq_home sq_age sq_air sq_y 
* carry out data-based model reduction 
ols sub home inst tv age air y sq_home sq_age sq_air sq_y 
ols sub home inst tv age air y sq_age sq_air sq_y 
ols sub home tv age air y sq_age sq_air sq_y 
* final model with all coefficients significant at 10 percent level 
ols sub home age air y sq_age sq_air sq_y 
*  estimate most general model using the Hendry/LSE approach 
ols sub home inst svc tv age air y sq_home sq_inst sq_svc sq_tv &
 sq_age sq_air sq_y 
* carry out data-based model reduction on this 
ols sub home svc age air y sq_home sq_svc sq_tv sq_age sq_air sq_y 
ols sub home age air y sq_home sq_tv sq_age sq_air sq_y 
ols sub home age air y sq_tv sq_age sq_air sq_y 
* note that the final model is identical to the one above 
ols sub home age air y sq_age sq_air sq_y 
delete / all
stop