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Beware of "good" outliers and overoptimistic conclusions

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Author Info

  • Vincenzo Verardi
  • Catherine Dehon
  • Marjorie Gassner

Abstract

The main goal of this paper is to warn practitioners of the danger of neglecting outliers in regression analysis, in particular, good leverage points (i.e. points lying close to the regression hyperplane but outlying in the x-dimension). While the types of outliers which do influence regression estimates (vertical outliers and bad leverage points) have been extensively investigated, good leverage points have been largely ignored, probably because they do not affect the estimated regression parameters. However, their effect on inference is far from negligible. We propose a step-by-step procedure to identify and treat all types of outliers. The paper of Persson and Tabellini [American Economic Review (2004) Vol. 94, pp. 25–46] linking the degree of proportionality of an electoral system to the size of government is discussed to illustrate how the choice of a measure and the existence of atypical observations may substantially influence results.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/9907.

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Date of creation: Jun 2009
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Publication status: Published in: Oxford Bulletin of Economics and Statistics (2009) v.71 n° 3,p.437-452
Handle: RePEc:ulb:ulbeco:2013/9907

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Keywords: C12 • C21 • H11;

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Cited by:
  1. Goetghebuer, Tatiana, 2011. "Productive inefficiency in patriarchal family farms: evidence from Mali," Proceedings of the German Development Economics Conference, Berlin 2011 34, Verein für Socialpolitik, Research Committee Development Economics.
  2. Liebermann, Joelle, 2011. "Real-Time Nowcasting of GDP: Factor Model versus Professional Forecasters," Research Technical Papers 3/RT/11, Central Bank of Ireland.
  3. Vincenzo Verardi & Joachim Wagner, 2011. "Robust Estimation of Linear Fixed Effects Panel Data Models with an Application to the Exporter Productivity Premium," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 231(4), pages 546-557, August.
  4. Dehon, Catherine & Gassner, Marjorie & Verardi, Vincenzo, 2009. "A Hausman-type test to detect the presence of influential outliers in regression analysis," Economics Letters, Elsevier, vol. 105(1), pages 64-67, October.
  5. Salois, Matthew J., 2012. "Obesity and diabetes, the built environment, and the ‘local’ food economy in the United States, 2007," Economics & Human Biology, Elsevier, vol. 10(1), pages 35-42.
  6. Liebermann, Joelle, 2011. "The Impact of Macroeconomic News on Bond Yields: (In)Stabilities over Time and Relative Importance," Research Technical Papers 7/RT/11, Central Bank of Ireland.
  7. Badi H. Baltagi & Georges Bresson, 2012. "A Robust Hausman-Taylor Estimator," Center for Policy Research Working Papers 140, Center for Policy Research, Maxwell School, Syracuse University.
  8. Salois, Matthew J., 2011. "Obesity and Diabetes, the Built Environment, and the 'Local' Food Economy," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103649, Agricultural and Applied Economics Association.
  9. Vincenzo Verardi & Joachim Wagner, 2010. "Productivity premia for German manufacturing firms exporting to the Euro-area and beyond: First evidence from robust fixed effects estimations," Working Paper Series in Economics 172, University of Lüneburg, Institute of Economics.
  10. Maria Vera-Cabello & Marcos Sanso-Navarro & Fernando Sanz, 2011. "The impact of the American Civil War on city growth," ERSA conference papers ersa11p1514, European Regional Science Association.
  11. Biewen, Martin & Weiser, Constantin, 2011. "A New Approach to Testing Marginal Productivity Theory," IZA Discussion Papers 6113, Institute for the Study of Labor (IZA).

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