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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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  • 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.  
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  • 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…