ANNALS OF ECONOMICS AND FINANCE 2, 31{58 (2001) Consistent Specication Tests for Regression Models

This paper presents three procedures for testing specications of regression models. The rst procedure is parametric and it tests the specication of an unconditional moment restriction model against a nonnested unconditional moment restriction model. The second procedure is nonparametric and it tests the specication of a conditional moment restriction model against a nonnested conditional moment restriction model. The third procedure also is nonpara-metric but it tests the specication of a conditional moment restriction model against all alternative specications. All procedures permit heteroskedasticity of unknown form and are shown to be consistent. The test statistics of the rst two procedures are simply the t-ratios of a 2SLS estimator while that of the third procedure is computable from LS output via auxiliary LS regressions.