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Robust Specification Testing in Regression: The FRESET Test and Autocorrelated Disturbances

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Abstract

This study investigates the degree of size-distortion of the RESET, FRESETL and FRESETS tests, and their ability to reject falsely specified models in terms of an omitted variable, in the presence of autocorrelation. Specifically, in the presence of AR(1) and MA(1) processes, respectively. We also explore the properties of the corresponding tests when the robust error covariance matrix estimator of Newey and West (1987) is used in the construction of the tests. Our results indicated that the FRESET tests performed equally as well as, and in many cases yield higher "power" than the comparable RESET test. The dominance of the FRESET tests was even more pronounced when a Newey-West correction for autocorrelation was used as evidenced by higher rejection rates.

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Bibliographic Info

Paper provided by Department of Economics, University of Victoria in its series Econometrics Working Papers with number 9806.

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Length: 13 pages
Date of creation: 27 May 1998
Date of revision:
Handle: RePEc:vic:vicewp:9806

Note: ISSN 1485-6441
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Keywords: Specification Analysis; RESET test; Autocorrelation;

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  1. Porter, Richard D. & Kashyap, Anil K., 1984. "Autocorrelation and the sensitivity of reset," Economics Letters, Elsevier, vol. 14(2-3), pages 229-233.
  2. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
  3. Gallant, A. Ronald, 1981. "On the bias in flexible functional forms and an essentially unbiased form : The fourier flexible form," Journal of Econometrics, Elsevier, vol. 15(2), pages 211-245, February.
  4. Mitchell, Karlyn & Onvural, Nur M, 1996. "Economies of Scale and Scope at Large Commercial Banks: Evidence from the Fourier Flexible Functional Form," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 178-99, May.
  5. Thursby, Jerry G, 1989. "A Comparison of Several Specification Error Tests for a General Alternative," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 217-30, February.
  6. Thursby, Jerry G, 1982. "Misspecification, Heteroscedasticity, and the Chow and Goldfeld-Quandt Tests," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 314-21, May.
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  1. Local vs. Global Approximations
    by Dave Giles in Econometrics Beat: Dave Giles' Blog on 2012-07-08 16:56:00
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Cited by:
  1. David E. A. Giles & Betty J. Johnson, 1999. "Taxes, Risk-Aversion, and the Size of the Underground Economy: A Nonparametric Analysis With New Zealand Data," Econometrics Working Papers 9910, Department of Economics, University of Victoria.
  2. Seung Hyun Hong & Peter C. B. Phillips, 2005. "Testing Linearity in Cointegrating Relations with an Application to Purchasing Power Parity," Cowles Foundation Discussion Papers 1541, Cowles Foundation for Research in Economics, Yale University.

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