general question

[Dorf Smith]

Dear all,

I have some difficulties with my model. The high VIF are dummies, I assume that is okay, but my model is failing the RESET test! Which higher order terms from my variables I shall create, or how can I improve the RESET test to pass? Any suggestions please.

Best wishes,

Dorf Smith

[Joao Santos Silva]

Dear Dorf Smith,

As far as I understand, ovtest performs the RESET using a non-robust covariance matrix estimator. If that is the case, I suggest that you ignore the results of that command and perform the test "manually", possibly just with the squares of the fitted values, and using the same kind of covariance matrix estimator you use for your model. What to do after that depends on the result you get.

Best wishes,

Joao
PS: You can probably ignore the VIFs

[Carlo Lazzaro]

Dorf:
as an aside to Joao's helpful reply, see -linktest-.