Discuss the Ramsey’s Test (RESET) for identification of ‘o

Question

Discuss the Ramsey’s Test (RESET) for identification of ‘omitted variables’ and ‘incorrect functional form

13 Jul 2023

Answer :

Word Count : 307

Ramsey’s Test, also known as the RESET test, is a diagnostic tool used to identify potential misspecification in a regression model, specifically the presence of omitted variables or an incorrect functional form. The test involves adding additional terms to the model and examining whether they improve the fit of the model.

To perform the RESET test, we first estimate the original regression model and obtain the residuals. ____ __________ _____ _______ ____ ____ __________ ___.
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