Chapter12经济.ppt

 Chapter 12 Multicollinearity: What Happens if Explanatory Variables are Correlated  In cases of perfect linear relationship or perfect multicollinearity among explanatory variables, we cannot obtain unique estimates of all parameters. And since we cannot obtain their unique estimates, we cannot draw any statistical inferences (i.e., hypothesis testing) about them from a given sample. For Example: The Demand for Widgets Original Model: Yi=A1+A2X2i+A3X3i+μi Transformation: X3i =300－2X2i Yi =A1+A2X2i+A3 ( 300－2X2i ) +μi =(A1+300 A3 ) +(A2 －2 A3 ) X2i +μi = C1 + C2 X2i +μi Estimation: get the OLS estimators C1 =A1+300 A3 , C2 =A2 －2 A3, So from the estimators of C1 , C2 , we can not get the estimators of A1 , A2 and A3 That is : in cases of perfect multicollinearity, estimation and hypothesis testing about individual regression coefficients in a multiple regression are not possible. We can just obtain estimates of a linear combination of the original coefficients, but not each of them individually. 12.2 The Case of Near, or Imperfect, or High Multicollinearity When we talk about multicollinearity, we usually refer it to imperfect multicollinearity. X3i=B1+B2X2i+ei If there are just two explanatory variables, the coefficient of correlation r can be used as a measure of the degree or strength of collinearity. If there are more than two explanatory variables, the coefficient of correlation r may not be an adequate measure of collinearity. 12.3 Theoretical Consequences of Multicollinearity Note: we consider only the case of imperfect multicollinearity When collinearity is not perfect, OLS estimators still remain BLUE even though one or more of the partial regression coefficients in a multiple regression can be individually st