# Model Misspecification

• There are two broad categories of model misspecification:-
1. The functional form can be misspecified
• Important variables are omitted
• Variables should be transformed
• Data is improperly pooled
1. Independent variables are correlated with the error term in the time series model
• A lagged dependent variable is used as an independent variable
• Function of dependent variable is used as an independent variable
• Independent variable are measured with error.