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Multicollinearity in linear economic models

  • D.┬áNeeleman

Part of the Tilburg Studies in Economics book series (TIEC, volume 7)

Table of contents

  1. Front Matter
    Pages I-VIII
  2. D. Neeleman
    Pages 67-89
  3. Back Matter
    Pages 90-103

About this book

Introduction

It was R. Frisch, who in his publications 'Correlation and Scatter Analysis in Statistical Variables' (1929) and 'Statistical Confluence Analysis by means of Complete Regression Systems' (1934) first pointed out the complications that arise if one applies regression analysis to variables among which several independent linear relations exist. Should these relationships be exact, then there exist two closely related solutions for this problem, viz. 1. The estimation of 'stable' linear combinations of coefficients, the so-called estimable functions. 2. The dropping of the wen-known condition of unbiasedness of the estimators. This leads to minimum variance minimum bias estimators. This last solution is generalised in this book for the case of a model consisting of several equations. In econometrics however, the relations among variables are nearly always approximately linear so that one cannot apply one of the solutions mentioned above, because in that case the matrices used in these methods are, although ill-conditioned, always of full rank. Approximating these matrices by good-conditioned ones of the desired rank, it is possible to apply these estimation methods. In order to get an insight in the consequences of this approximation a simulation study has been carried out for a two-equation model. Two Stage Least Squares estimators and estimators found with the aid of the above mentioned estimation method have been compared. The results of this study seem to be favourable for this new method.

Keywords

econometrics regression regression analysis simulation

Authors and affiliations

  • D.┬áNeeleman
    • 1
  1. 1.Free University of AmsterdamThe Netherlands

Bibliographic information

  • DOI https://doi.org/10.1007/978-94-011-7486-2
  • Copyright Information Springer Science+Business Media B.V. 1973
  • Publisher Name Springer, Dordrecht
  • eBook Packages Springer Book Archive
  • Print ISBN 978-94-011-7488-6
  • Online ISBN 978-94-011-7486-2
  • Buy this book on publisher's site