Size and Power of the RESET Test as Applied to Systems of Equations:
A Bootstrap Approach
By Ghazi Shukur and Panagiotis Mantalos
The size and power of various generalization of the RESET test for
functional misspecification are investigated, using the "Bootsrap critical
values", in systems ranging from one to ten equations. The properties of 8
versions of the test are studied using Monte Carlo methods. The results are
then compared with another study of Shukur and Edgerton (1997), in which
they used the asymptotic critical values instead. In our study, we find that
all the tests exhibits correct size even in large systems. The power of the
test is low, however, when the number of equations grows and the correlation
between the omitted variables and the RESET proxies is small.
RESET, Systems of Equations, Bootstrap
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