If I have a dependent variable Y and two independent variables X1 and X2 , that are highly correlated.
Y ~ beta1*X1 + beta2*X2
What issues can multicollinearity cause in an OLS regression, apart from unstable beta1 and beta2 estimates ?
Asked
Active
Viewed 113 times
2
-
2What would it mean for the $R^2$ to be "higher than it should be"? – gung - Reinstate Monica May 06 '14 at 02:27
-
removed that part of the question. It was an ambiguous statement. – silencer May 06 '14 at 02:39
-
@PatrickCoulombe: I thought about it too, but that one seems to pertain specifically to parameter estimates, and this one specifically **not** to them. – Nick Stauner May 06 '14 at 03:05
-
If you have high multi-collinearity, your beta1 and beta2 are essentially meaningless, you cannot trust their statistically significance nor magnitude. Your R-squared is inflated, so it is largely meaningless. There is no useful information that the regression provides, what other issues could there be? – Akavall May 06 '14 at 04:00