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Estimation under Multicollinearity: Application of Restricted Liu and Maximum Entropy Estimators to the Portland Cement Dataset

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Abstract

A high degree of multicollinearity among the explanatory variables severely impairs estimation of regression coefficients by the Ordinary Least Squares. Several methods have been suggested to ameliorate the deleterious effects of multicollinearity. In this paper we aim at comparing the Restricted Liu estimates of regression coefficients with those obtained by applying the Maximum Entropy Leuven (MEL) family of estimators on the widely analyzed dataset on Portland cement. This dataset has been obtained from an experimental investigation of the heat evolved during the setting and hardening of Portland cements of varied composition and the dependence of this heat on the percentage of four compounds in the clinkers from which the cement was produced. The relevance of the relationship between the heat evolved and the chemical processes undergone while setting takes place is best stated in the words of Woods et al.: "This property is of interest in the construction of massive works as dams, in which the great thickness severely hinder the outflow of the heat. The consequent rise in temperature while the cement is hardening may result in contractions and cracking when the eventual cooling to the surrounding temperature takes place." Two alternative models have been formulated, the one with an intercept term (non-homogenous) that exhibits a very high degree of multicollinearity and the other with no intercept term (extended homogenous) that characterizes perfect multicollinearity. Our findings suggest that several members of the MEL family of estimators outperform the OLS and the Restricted Liu estimators. The MEL estimators perform well even when perfect multicollinearity is there. A few of them may outperform the Minimum Norm LS (OLS+) estimator. Since the MEL estimators do not seek extra information from the analyst, they are easy to apply. Therefore, one may rely on the MEL estimators for obtaining the coefficients of a linear regression model under the conditions of severe (including perfect) multicollinearity among the explanatory variables.

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  • Mishra, SK, 2004. "Estimation under Multicollinearity: Application of Restricted Liu and Maximum Entropy Estimators to the Portland Cement Dataset," MPRA Paper 1809, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:1809
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    File URL: https://mpra.ub.uni-muenchen.de/1809/1/MPRA_paper_1809.pdf
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    References listed on IDEAS

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    1. Sudhanshu Mishra, 2004. "Multicollinearity and maximum entropy leuven estimator," Economics Bulletin, AccessEcon, vol. 3(25), pages 1-11.
    2. Quirino Paris, 2001. "Multicollinearity and maximum entropy estimators," Economics Bulletin, AccessEcon, vol. 3(11), pages 1-9.
    3. Paris, Quirino, 2001. "Mele: Maximum Entropy Leuven Estimators," Working Papers 11991, University of California, Davis, Department of Agricultural and Resource Economics.
    4. Golan, Amos & Judge, George G. & Miller, Douglas, 1996. "Maximum Entropy Econometrics," Staff General Research Papers Archive 1488, Iowa State University, Department of Economics.
    5. Dasgupta, Madhuchhanda & Mishra, SK, 2004. "Least absolute deviation estimation of linear econometric models: A literature review," MPRA Paper 1781, University Library of Munich, Germany.
    6. repec:ebl:ecbull:v:3:y:2004:i:25:p:1-11 is not listed on IDEAS
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    Cited by:

    1. Sudhanshu K. MISHRA, 2016. "Shapley Value Regression and the Resolution of Multicollinearity," Journal of Economics Bibliography, KSP Journals, vol. 3(3), pages 498-515, September.

    More about this item

    Keywords

    Multicollinearity; Estimator; Restricted Liu; Maximum Entropy Leuven estimator; MEL family; Modular Maximum Entropy Leuven estimator; Least Absolute Deviation; Minimum Norm Least Squares; Moore-Penrose inverse; Portland cement dataset;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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