Econometrics HT 18

Chapter 18 : Multicollinearity and forecasting

By Lund University

Two minor topics related to the LRM.

Multicollinearity and forecasting

This section contains two unrelated topics. We begin by looking at multicollinearity, a problem where the explanatory variables are highly correlated. Presence of multicollinearity makes it difficult to estimate individual beta parameters. Forecasting will allow us to predict the value of the dependent variable for given values of the explanatory variables even when the observation is not part of our sample.

Multicollinearity

Forecast in the LRM

Multicolinearity, two explanatory variables

Multicolinearity

Forecast