When two explanatory variables are highly correlated, should you remove one of the correlated explanatory variables...
When two explanatory variables are highly correlated, should you remove one of the correlated explanatory variables to reduce the multicollinearity problem.
A. Yes, it will reduce the standard errors on the coefficients and increase the t statistics.
B. No, it will not affect the t statistics on the coefficients.
C. No, it will cause the coefficient on the remaining variable to be biased.
D. Yes, it will improve the fit of the regression model.
Homework Answers
The correct option is A.)Yes, it will reduce the standard errors on the coefficients and increase the t statistics.
When two explanatory variables are highly correlated, should you remove one of the correlated explanatory variables to reduce the multicollinearity problem.
A.) Yes, it will reduce the standard errors on the coefficients and increase the t statistics.
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