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There is a widespread belief among economists that adding additional variables to a regression model causes higher standard errors. This note shows that, in general, this belief is unfounded and that the impact of adding variables on coefficients’ standard errors is unclear. The concept of...
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Textbook theory predicts that t-ratios decline towards zero in regressions when there is increasing collinearity … coefficients increase greatly with more collinearity. The purposes of this article are 1) to illustrate this bias and explain why … increasing collinearity. False negatives are possible, but not likely. The test is confirmed with algebraic examples and …
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