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Re: st: RE: Multicollinerity test in IV regression


From   Marcello Pagano <pagano@hsph.harvard.edu>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: RE: Multicollinerity test in IV regression
Date   Wed, 13 Oct 2004 22:55:09 -0400

Oops.  My apologies.  That should read if X1-X2=0 , then drop both
and introduce X1+X2.   Of course, what Austin says is correct.

What the argument here is, and I heard this from John Tukey, is if
basically both X1 and X2 seem to be measuring the same thing based
on this sample region, why be forced into a choice where you might
choose the wrong one (as judged by future experimentation).

m.p.

Nichols, Austin wrote:

Um... if X1+X2=0 then the coefficient on (X1+X2)
must be indeterminate, no?

See _______________________________
Dufour, J.-M. and M. Taamouti (2003), "Projection-Based Statistical Inference in Linear Structural Models with Possibly Weak Instruments", Discussion Paper, C.R.D.E., Université de Montréal, 42 pages
_______________________________
for another approach to possibly collinear X's

-----Original Message-----
A better solution might be to replace all offending predictors
by (a) linear combination(s) that make sense. For example if
X1+X2=0, then drop both X1 and X2 and replace them with the
new variable X1+X2. You can extend this to the more general
situation.

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