APPLICATION OF THE RESET TEST TO THE ORIGINAL ANDERSEN-JORDAN EQUATION

In applying the RESET test to the original Andersen-Jordan (AJ) equation, additional information is used to identify the set of test variables. The test findings signify the non-linearity of the conditional mean and suggest that the original AJ equation estimated for 1952:iv-1968:ii is misspecified. Further evidence suggests that the relation between money and GNP inferred from the AJ equation differs significantly in 1952:iv-1959:iii from 1959:iv-1968:ii, with traditional implications only strictly confirmed for the second period. The main point made is that more information can help detect specification errors when applying the RESET test. © 1991.