BALANCED VARIABLE ADDITION IN LINEAR MODELS

Giuseppe De Luca; Jan R. Magnus; Franco Peracchi

doi:10.1111/joes.12245

BALANCED VARIABLE ADDITION IN LINEAR MODELS

Giuseppe De Luca, Jan R. Magnus, Franco Peracchi^*

^*Corresponding author for this work

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

This paper studies what happens when we move from a short regression to a long regression in a setting where both regressions are subject to misspecification. In this setup, the least-squares estimator in the long regression may have larger inconsistency than the least-squares estimator in the short regression. We provide a simple interpretation for the comparison of the inconsistencies and study under which conditions the additional regressors in the long regression represent a “balanced addition” to the short regression.

Original language	English
Pages (from-to)	1183-1200
Number of pages	18
Journal	Journal of Economic Surveys
Volume	32
Issue number	4
DOIs	https://doi.org/10.1111/joes.12245
Publication status	Published - Sept 2018

Keywords

Bias amplification
Inconsistency
Least-squares estimators
Mean squared error
Omitted variables
Proxy variables

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author = "{De Luca}, Giuseppe and Magnus, {Jan R.} and Franco Peracchi",

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AB - This paper studies what happens when we move from a short regression to a long regression in a setting where both regressions are subject to misspecification. In this setup, the least-squares estimator in the long regression may have larger inconsistency than the least-squares estimator in the short regression. We provide a simple interpretation for the comparison of the inconsistencies and study under which conditions the additional regressors in the long regression represent a “balanced addition” to the short regression.

KW - Bias amplification

KW - Inconsistency

KW - Least-squares estimators

KW - Mean squared error

KW - Omitted variables

KW - Proxy variables

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JF - Journal of Economic Surveys

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BALANCED VARIABLE ADDITION IN LINEAR MODELS

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Keywords

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