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Article
Bias of OLS Estimators due to Exclusion of Relevant Variables and Inclusion of Irrelevant Variables
Oxford Bulletin of Economics and Statistics (2020)
  • Deepankar Basu
Abstract
In this paper, I discuss three issues related to bias of OLS estimators in a general multivariate setting. First, I discuss the bias that arises from omitting relevant variables. I offer a geometric interpretation of such bias and derive sufficient conditions in terms of sign restrictions that allows us to determine the direction of bias. Second, I show that inclusion of some omitted variables will not necessarily reduce the magnitude of bias as long as some others remain omitted. Third, I show that inclusion of irrelevant variables in a model with omitted variables can also have an impact on the bias of OLS estimators. I use a running example of a simple wage regression to illustrate my arguments.
Keywords
  • omitted variable bias
Disciplines
Publication Date
February, 2020
DOI
https://doi.org/10.1111/obes.12322
Citation Information
Deepankar Basu. "Bias of OLS Estimators due to Exclusion of Relevant Variables and Inclusion of Irrelevant Variables" Oxford Bulletin of Economics and Statistics Vol. 82 Iss. 1 (2020) p. 209 - 234
Available at: http://works.bepress.com/deepankar_dasu/33/