Specification and Stability Tests versus Jackknifing: Some Illustrative Examples

We present results of Monte Carlo simulations for model misspecification. Several variations of Stone’s (1974) Q2 statistic are computed using the jackknife procedure. These statistics measure the relative error in predicting the omitted observations using simple extrapolations. We compare the ability of these “predictive” statistics to detect model misspecification with the usual test statistics. The misspecifications we examined include omitted variables, nonlinearities, and structural change (shifts in coefficients during the sample period). Although none of the predictive statistics perform uniformly better over the entire range of misspecifications, in some cases, they detect departures from the “true model” with substantially greater frequency.