When Would You Use the RESET Test? What Is the Null

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The Answer is The RESET test is used to test for the inclusion of higher order polynomials such as x² and x³.To perform the RESET test you first estimate the original regression model and then obtain the predicted values squared,predicted values cubed,and predicted values raised to the 4^th power.You then regress y on the original model and the three additional functions of the predicted values.The null hypothesis for the test is that the coefficients on the higher order polynomials are equal to 0 and the polynomials do not belong in the regression.Perform an F-test if all the new parameters are jointly equal to 0.The intuition behind this test is that higher order functions of the predicted values contain higher order functions of the independent variables and therefore if the predicted values raised to the 2,3,and 4 are statistically significant then higher order functions of the predicted values are needed.

When Would You Use the RESET Test? What Is the Null

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