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Multicollinearity vs. Omitted Variable Bias

#9313
Avatarincisivemind
Participant

Background
In Section 4.3.3 Correcting for Multicollinearity, the CFA Reading instructs to exclude one or more regression variables to correct multicollinearity.

However, under Section 5.2 Misspecified Functional Form, the CFA Reading warns against the risk of omitted variable bias if you exclude an explanatory variable.

Question
So, do you exclude or not exclude a corellated independent variable?

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