Ruhr Economic Papers
Ruhr Economic Papers #282
The Phantom Menace of Omitted Variables – A Comment
by Nolan Ritter and Colin Vance
RWI, 09/2011, 10 S./p., 8 Euro, ISBN 978-3-86788-327-6download
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.
JEL-Classification: C12, C15, C18
Keywords: Control variables; variance; model specification