The Phantom Menace of Omitted Variables – a Comment
Posted: 14 Sep 2011
Date Written: September 1, 2011
This note demonstrates that in applied regression analysis, the variance of a coefficient of interest may decrease from the inclusion of a control variable, contrasting with Clarke’s assertion (2005, 2009) that the variance can only increase or stay the same. Practitioners may thus be well-advised to include a relevant control variable on this basis alone, particularly when it is weakly correlated with the variable of interest.
Keywords: Control variables, variance, model specification
JEL Classification: C12, C15, C18
Suggested Citation: Suggested Citation