Model Specification: Excluding relevant variable and including irrelevant variable Mod specification
Channel: Zahid Asghar
Date: 2020-11-04

Economic theory ought to provide a guide, but theory is never perfect. For more on stuff related to this video is : Specification of Regression Variables from Ch.6 Dougherty
Specifying an equation consists of three parts:
1. Choosing the correct independent variables
2. Choosing the correct functional form
3. Choosing the correct form of the random error term
A specification error occurs when the model is misspecified in terms of the choice of
variables, functional form or error structure.
In choosing explanatory variables, two types of errors are likely:
 Omitting a variable that belongs in the model
 Including an irrelevant variable