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Applying the RESET test in allocation models: a cautionary note

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  • David Giles
  • Andrea Keil

Abstract

Some of the issues which arise if the RESET test is used to validate the functional form of the equations in an allocation model are discussed. The simple application of this test, equation, by equation, is inappropriate on various grounds. The appropriate formulation of the RESET test in a full systems context requires care. This is discussed and illustrated with Engel curves for expenditure on alcoholic beverages in Australia. The same principles apply to other 'variable addition tests' used in econometrics.

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  • David Giles & Andrea Keil, 1997. "Applying the RESET test in allocation models: a cautionary note," Applied Economics Letters, Taylor & Francis Journals, vol. 4(6), pages 359-363.
    • Handle: RePEc:taf:apeclt:v:4:y:1997:i:6:p:359-363
    DOI: 10.1080/135048597355302
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    References listed on IDEAS

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    Cited by:

    1. José M. R. Murteira & Joaquim J. S. Ramalho, 2016. "Regression Analysis of Multivariate Fractional Data," Econometric Reviews, Taylor & Francis Journals, vol. 35(4), pages 515-552, April.
    2. Simon Peters, 2000. "On the use of the RESET test in microeconometric models," Applied Economics Letters, Taylor & Francis Journals, vol. 7(6), pages 361-365.

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