When Can We Determine the Direction of Omitted Variable Bias of OLS Estimators?

Deepankar Basu ()
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Deepankar Basu: Department of Economics, University of Massachusetts - Amherst

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: Omitted variable bias (OVB) of OLS estimators is a serious and ubiquitous problem in social science research. Often researchers use the direction of the bias in substantive arguments or to motivate estimation methods to deal with the bias. This paper offers a geometric interpretation of OVB that highlights the difficulty in ascertaining its sign in any realistic setting and cautions against the use of direction-of-bias arguments. This analysis has implications for comparison of OLS and IV estimators too.

Keywords: omitted variable bias; ordinary least squares (search for similar items in EconPapers)
JEL-codes: C20 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (3)

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