Hi Everybody,
This Schweser’s seems a real nest of incongruences, please could you help me clarify it.
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A variable is regressed against three other variables, x, y, and z. Which of the following would NOT be an indication of multicollinearity? X is closely related to:
A) 3y + 2z. B) 3. C) y2.
Your answer: B was incorrect. The correct answer was C) y2.
If x is related to y2, the relationship between x and y is not linear, so multicollinearity does not exist. If x is equal to a constant (3), it will be correlated with the intercept term.
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The intercept term is not an independent variable and the explanation given is in contradiction with the “closely related”. I mean the independent variable could variate around 3.
And also are we sure of the: “If x is related to y2, the relationship between x and y is not linear, so multicollinearity does not exist”?? Seems a bit wide and unprovable, I am sure there are cases (need a mathematician on this one :))
What do you think?
Thank you,