egr question for Pacer 258 engine

I have never seen my 1977 232 (which is a very similar engine configuration to your own) knock without its EGR, even when I advanced the timing way up and it was running lean. It takes a lot to make one of these engines knock.

If you run EGR, you will need the CTO. A cold engine will not like having exhaust dumped into it's intake. It will hesitate and bog at best, backfire and stall at worst.

If your Pacer is a 1975 or 1976, the backpressure transducer is a separate part from the EGR valve. It is a plate that bolts between the AGR valve and the exhaust manifold that has a tube coming from it and a diaphragm-looking thing. The way that system should be plumbed is: carburetor ported vacuum from the "E" port on the carburetor goes to the CTO, then from the CTO it goes to the BP transducer (I'm not sure which end), then finally to the EGR valve. The proper EGR valve will stay open if you apply vacuum to it then seal off the vacuum. However, the transducer should leak vacuum if you apply vacuum to one side of it while sealing off the other side. It needs backpressure from the running engine to actually seal and pass vacuum to the EGR valve. 

If your Pacer is 1977 or newer, the EGR valve has the backpressure transducer built-in. The vacuum line from the CTO simply plugs into the EGR valve. The proper EGR valve for this system will not hold vacuum. If you apply vacuum to it, the vacuum will just leak out. It needs backpressure from the engine to hold vacuum and cause it to open. 

we really can't help a lot without some engine specifics.