《计量经济学导论》ch9.pptVIP

Chapter 9 ;Tests for functional form misspecification One can always test whether explanatory should appear as squares or higher order terms by testing whether such terms can be excluded Otherwise, one can use general specification tests such as RESET Regression specification error test (RESET) The idea of RESET is to include squares and possibly higher order fitted values in the regression (similarly to the reduced White test) ;Example: Housing price equation Discussion One may also include higher order terms, which implies complicated interactions and higher order terms of all explanatory variables RESET provides little guidance as to where misspecification comes from;Testing against nonnested alternatives Discussion Can always be done; however, a clear winner need not emerge Cannot be used if the models differ in their definition of the dep. var.;Using proxy variables for unobserved explanatory variables Example: Omitted ability in a wage equation General approach to using proxy variables ;Assumptions necessary for the proxy variable method to work The proxy is ?just a proxy“ for the omitted variable, it does not belong into the population regression, i.e. it is uncorrelated with its error The proxy variable is a ?good“ proxy for the omitted variable, i.e. using other variables in addition will not help to predict the omitted variable ;Under these assumptions, the proxy variable method works: Discussion of the proxy assumptions in the wage example Assumption 1: Should be fullfilled as IQ score is not a direct wage determinant; what matters is how able the person proves at work Assumption 2: Most of the variation in ability should be explainable by variation in IQ score, leaving only a small rest to educ and exper; ;Using lagged dependent variables as proxy variables In many cases, omitted unobserved factors may be proxied by the value of the dependent variable from an earlier time period Example: City crime rates Including the past crime rate will at least partl