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Detection of Near-Nulticollinearity through Centered and Noncentered Regression

Román Salmerón Gómez (), Catalina García García () and José García Pérez ()
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Román Salmerón Gómez: Department of Quantitative Methods for Economics and Business, University of Granada, 18010 Granada, Spain
Catalina García García: Department of Quantitative Methods for Economics and Business, University of Granada, 18010 Granada, Spain
José García Pérez: Department of Economy and Company, University of Almería, 04120 Almería, Spain

Mathematics, 2020, vol. 8, issue 6, 1-17

Abstract: This paper analyzes the diagnostic of near-multicollinearity in a multiple linear regression from auxiliary centered (with intercept) and noncentered (without intercept) regressions. From these auxiliary regressions, the centered and noncentered variance inflation factors (VIFs) are calculated. An expression is also presented that relates both of them. In addition, this paper analyzes why the VIF is not able to detect the relation between the intercept and the rest of the independent variables of an econometric model. At the same time, an analysis is also provided to determine how the auxiliary regression applied to calculate the VIF can be useful to detect this kind of multicollinearity.

Keywords: centered model; noncentered model; intercept; essential multicollinearity; nonessential multicollinearity (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2020
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