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st: multicollinearity


From   Chris Witte <eljefespeaks@yahoo.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: multicollinearity
Date   Wed, 19 Nov 2008 17:11:35 -0800 (PST)

I have read that -anova- and -regress- will drop variables that have collinearity problems, but I have never had Stata drop variables on me.  For example:

sysuse auto
reg price headroom trunk weight length turn displacement gear_ratio

      Source |       SS       df       MS              Number of obs =      74
-------------+------------------------------           F(  7,    66) =    8.18
       Model |   295089440     7  42155634.3           Prob > F      =  0.0000
    Residual |   339975956    66  5151150.85           R-squared     =  0.4647
-------------+------------------------------           Adj R-squared =  0.4079
       Total |   635065396    73  8699525.97           Root MSE      =  2269.6
------------------------------------------------------------------------------
       price |      Coef.   Std. Err.      t    P>|t|     [95% Conf. Interval]
-------------+----------------------------------------------------------------
    headroom |  -788.1489   423.1895    -1.86   0.067    -1633.074    56.77608
       trunk |   109.2235   103.9332     1.05   0.297    -98.28582    316.7328
      weight |   5.300069   1.331056     3.98   0.000     2.642531    7.957607
      length |  -73.59571   42.42778    -1.73   0.087    -158.3055    11.11408
        turn |  -301.2525   124.9576    -2.41   0.019    -550.7384   -51.76669
displacement |    11.4282   7.622549     1.50   0.139    -3.790711    26.64711
  gear_ratio |   2236.615   1051.394     2.13   0.037     137.4391    4335.791
       _cons |   7795.908   6103.469     1.28   0.206    -4390.061    19981.88
------------------------------------------------------------------------------


and the correlation between weight and length is 0.9460.  Why aren't one of these variables dropped?  Does there have to be perfect correlation before dropping variables occurs?


      

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