Question: a) Is Model 1 correctly specified? Test using an appropriate test and 5% significance level. [20 marks] Auxiliary regression for RESET specification test OLS, using

a) Is Model 1 correctly specified? Test using an appropriate test and 5% significance level. [20 marks] Auxiliary regression for RESET specification test OLS, using observations 1980:1-1999:3 (T = 79) Dependent variable: m_p coefficient std. error t-ratio p-value ---------------------------------------------------------- const 326.099 71.3519 4.570 1.97e-05 *** y 131.764 29.1821 4.515 2.42e-05 *** rs 0.121481 0.0259833 4.675 1.33e-05 *** rl 0.0245913 0.00644269 3.817 0.0003 *** p 14.7597 3.30956 4.460 2.96e-05 *** yhat^2 25.2823 5.65200 4.473 2.82e-05 *** yhat^3 1.87831 0.427083 4.398 3.71e-05 *** Test statistic: F = 31.021898, with p-value = P(F(2,72) > 31.0219) = 1.92e-010

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