Question: Your research includes a basic regression specification y = x + yz+u, where x is an explanatory variable of interest and z is a

Your research includes a basic regression specification y = x + yz+u, where x is an explanatory variable of interest and z is a set of control variables. Your null hypothesis is HO: B = 1. You are choosing between two specifications, one excluding the control variables and one including the control variables. Estimation results are shown below: Variable X Z1 Zz (1) 0.83 (0.20) (2) 1.08 (0.10) 1.00 (0.23) 2.30 (1.96) Standard errors are presented in parenthesis. Does specification (1), which excludes control variables, embed an omitted variable bias? Would your answer change if your null hypothesis was HO: B=0? Would your answer change if economic theory indicated that z did not belong in the specification? Justify your reasoning.

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