Charles I. Plosser

President, Federal Reserve Bank of Philaadelphia,
and University of Rochester, Rochester, NY 14627

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G. William Schwert

University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research

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Halbert L. White

University of California, San Diego, CA

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International Economic Review, 23 (October 1982) 535-552

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This paper formalizes arguments presented in Plosser and Schwert [1978] by constructing a test of the hypothesis that a linear time series regression equation is well-specified. The test is based on a comparison of the least squares estimators obtained from the differenced and undifferenced regressions. The resulting specification test is similar to those proposed by Hausman [1978]. Monte Carlo experiments show that the differencing test has favorable size and power properties against errors-in-variables and omitted variables compared with Wu's [1973] instrumental variables test, Ramsey's RESET test, and the Durbin-Watson test.

Key words: Specification test, Errors-in-ariables, Omitted variables

JEL Classifications: C22

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Cited 43 times in the SSCI through 2007

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© Copyright 1982, International Economic Review

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