Ramsey's reset RESET relies on a trick similar to the special form of the White test o Instead of adding functions of the x's directly, we add and test functions of y ◆So, estimate y=β0+βx1+….+B1x+ 8,y2+8y +error and test o Ho: 8=0,82=0 using F-F2 or LM-X2 Economics 20- Prof anderson 5Economics 20 - Prof. Anderson 5 Ramsey’s RESET RESET relies on a trick similar to the special form of the White test Instead of adding functions of the x’s directly, we add and test functions of ŷ So, estimate y = b0 + b1 x1 + … + bk xk + d1 ŷ 2 + d1 ŷ 3 +error and test H0 : d1 = 0, d2 = 0 using F~F2,n-k-3 or LM~χ2 2