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Introductory EconometricsIntuition, Proof, and Practice$
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Jeffrey Zax

Print publication date: 2011

Print ISBN-13: 9780804772624

Published to Stanford Scholarship Online: June 2013

DOI: 10.11126/stanford/9780804772624.001.0001

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What If There Is More Than One X?

What If There Is More Than One X?

Chapter:
(p.411) Chapter 11 What If There Is More Than One X?
Source:
Introductory Econometrics
Publisher:
Stanford University Press
DOI:10.11126/stanford/9780804772624.003.0011

This chapter shows that if the population relationship includes two explanatory variables, but the sample regression contains only one, then the estimate of the effect of the included variable is almost surely biased. The best remedy is to include the omitted variable in the sample regression. Minimizing the sum of squared errors from a regression with two explanatory variables yields two slopes, each of which represents the relationship between the parts of the dependent variable and the associated explanatory variable that are not related to the other explanatory variable. These slopes are unbiased estimators of the population coefficients.

Keywords:   regression analysis, explanatory variables, population relationship, biased estimates, sum of squared errors, slopes, unbiased estimators

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