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# Tut9 multicollinearity

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Explains issues of multicollinearity for your econometric model

Explains issues of multicollinearity for your econometric model

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### Transcript

• 1. ECON321 Economic Analysis Tutorial 9 Multicollinearity
• 2. Introduction
• This tutorial shows you how to estimate a multiple regression model in EViews and test for multicollinearity.
• The example is one of the predictors of CEO salaries.
• The salaries are measured in thousands of dollar.
• Firms’ sales are measured in millions of dollar.
• Market value (or market capitalisation) in millions of dollar.
• And profits are also measured in millions of dollar.
• 3.
• 4.
• 5.
• 6.
• 7.
• 8.
• 9.
• 10.
• 11.
• 12. Multicollinearity
• In sum, the example shows that you have to be careful about judging the individual significance of an explanatory variable in the presence of a high degree of multicollinearity.
• Remember the remedial steps. You can try to:
• Drop a variable.
• Transform the data.
• Estimate a different functional form.
• Obtain a different sample.
• 13.
• Now that you know how to test for multicollinearity, the following tutorial will show you how to test for heteroskedasticity.
• Save your workfile and continue…