Ramsey reset test
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The Ramsey regression equation specification error test (Reset) test (Ramsey, 1969) is a general model (mis-)specification test for the linear regression model. More specifically, it tests whether non-linear combinations of the estimated values help explain the exogenous variable. The intuition behind the test is that, if non-linear combinations of the explanatory variables have any power in explaining the exogenous variable, then the model is mis-specified.
[edit] Technical summary
Consider the model
The Ramsey test then tests whether (β1x)2,(β2x)3...,(βkx)k has any power in explaining y. This is executed by estimating the following linear regression
,
and then testing, by a means of a F-test whether 
are zero. If the null-hypothesis that all regression coefficients of the non-linear terms are zero is rejected, then the model suffers from mis-specification.
[edit] References
- Ramsey, J.B. "Tests for Specification Errors in Classical Linear Least Squares Regression Analysis", J. Royal Statist. Soc. B., 32, 350-371 (1969).
