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An Analysis Model for the Disturbances Generated by Collinearity in the Context of the OLS Method

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  • Pavelescu, Florin Marius

    ()
    (Institute of National Economy, The Romanian Academy)

Abstract

Under the conditions of OLS use in order to perform multiple linear regressions, both the estimated parameters values and also computed values of some statistical tests such as coefficient of determination, Fisher test or Student test are influenced by collinearity1. The respective influence is revealed by the values of the coefficient of alignment to collinearity hazard. For this reason, this paper presents an analysis model which identifies the factors and their influences on the above-mentioned indicator. On the one hand, we quantify the factors contribution to the arithmetical mean of coefficients of alignment to collinearity hazard, having in view that the respective indicator reveals the collinearity impact on a linear regression model as a whole. On the other hand, we emphasize the necessary conditions for the positivity of all coefficients of alignment to collinearity hazard, in order to avoid the occurrence of “unexpected signs” in case of some estimated parameters. Also, we bring some clarifications and extensions of the other concepts previously proposed by the author such as: the main and secondary explanatory variable, coefficient of mediated by resultative variable correlation between explanatory variables.

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Bibliographic Info

Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2010)
Issue (Month): 2 (July)
Pages: 245-264

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Handle: RePEc:rjr:romjef:v::y:2010:i:2:p:245-264

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Related research

Keywords: arithmetical mean of coefficients of allignament to collinearity hazard; main explanatory variables; secondary explanatory variables; coefficient of correlation between explanatory variables mediated by resultative variable; structural constraints of a multiple linear regression model.;

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References

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  1. S. Illeris & G. Akehurst, 2002. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 22(1), pages 1-3, January.
  2. Pavelescu, Florin Marius, 2004. "Features Of The Ordinary Least Square (Ols) Method. Implications For The Estimation Methodology," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 1(2), pages 85-101, May.
  3. Jansen, W Jos & Schulze, Gunther G, 1996. "Theory-Based Measurement of the Saving-Investment Correlation with an Application to Norway," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 116-32, January.
  4. Pavelescu, Florin Marius, 2005. "Impact Of Collinearity On The Estimated Parameters And Classical Statistical Tests Values Of Multifactorial Linear Regressions In Conditions Of O.L.S," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 2(2), pages 50-71.
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Cited by:
  1. Florin-Marius PAVELESCU, 2011. "Some aspects of the translog production function estimation," Romanian Journal of Economics, Institute of National Economy, vol. 32(1(41)), pages 131-150, June.

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