Differencing as a Test of Specification
President, Federal Reserve Bank of Philaadelphia,
and University of Rochester, Rochester, NY 14627
G. William Schwert
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Halbert L. White
University of California, San Diego, CA
International Economic Review, 23 (October 1982) 535-552
This paper formalizes arguments presented in Plosser and Schwert 
by constructing a test of the hypothesis that a linear time series regression
equation is well-specified. The test is based on a comparison of the least
squares estimators obtained from the differenced and undifferenced regressions.
The resulting specification test is similar to those proposed by Hausman .
Monte Carlo experiments show that the differencing test has favorable size
and power properties against errors-in-variables and omitted variables compared
with Wu's  instrumental variables test, Ramsey's RESET test, and the
Key words: Specification test, Errors-in-ariables, Omitted variables
JEL Classifications: C22
Cited 44 times in the SSCI and SCOPUS through 2016
© Copyright 1982, International Economic Review
The following file contains the reprint of this paper in Acrobat's portable
data format (.pdf). The file is about 808 KB and can only be viewed (and
printed) using a copy of Acrobat Reader or Acrobat Exchange.
If you want the current version of the Adobe Acrobat Reader for other
platforms, visit Adobe's web page by clicking the image below.
Click here to download
this paper in PDF format.
Return to Publications Page
© Copyright 1998-2017, G. William
Last Updated on 8/8/2017