Multicollinearity is a common problem in econometrics. As explained in a previous post, multicollinearity arises when we have too few observations to precisely estimate the effects of two or more highly correlated variables on the dependent variable. This post tries to graphically illustrate the problem of multicollinearity using venn-diagrams. The venn-diagrams below all represent the following regression model Continue reading Graphically Illustrate Multicollinearity: Venn Diagram
Tag Archives: Mulitcollinearity
The Problem of Multicollinearity
Multicollinearity or collinearity refers to a situation where two or more variables of a regression model are highly correlated. Because of the high correlation, it is difficult to disentangle the pure effect of one single explanatory variables 
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