Suppose that you are performing the RESET test for the inclusion of higher-order polynomials and that in the second stage you estimate the sample regression function and the predicted value terms are statistically significant.You decide that
A)higher-order polynomials are not necessary for this regression.
B)you should investigate the inclusion of higher-order polynomials in your regression model.
C)neither regression model is appropriate.
D)higher-order polynomials are never appropriate to include in regression models.

Question

Quizplus · Accepted Answer

The fact that the predicted value terms are statistically significant suggests that there may be nonlinearities in the relationship between the independent and dependent variables that cannot be captured by a linear regression model. Therefore, it would be appropriate to investigate the inclusion of higher-order polynomials in the regression model. Option A is incorrect because the RESET test supports the inclusion of higher-order polynomials. Option C is incorrect because the RESET test has determined that a regression model with higher-order polynomials is appropriate. Option D is incorrect because higher-order polynomials may sometimes be necessary to adequately model the relationship between variables in a regression model.

Suppose That You Are Performing the RESET Test for the Inclusion