Q.1
To check the multicollinearity in regression analysis
which of the following test is used?
- Diagnostic Tests in Econometrics: Multicollinearity and VIF:
- Variance Inflation Factor (VIF): The standard econometric diagnostic metric used to detect multicollinearity among explanatory regressors in multiple regression analysis:
where $R_j^2$ is the coefficient of determination from regressing the $j$-th explanatory variable on all other explanatory variables. A VIF value exceeding 5 or 10 indicates severe multicollinearity, inflating the variance and standard errors of regression coefficients.
- Distractors:
- Durbin-Watson (D.W.) Test: Tests for first-order serial correlation (autocorrelation) in regression error residuals.
- Augmented Dickey-Fuller (ADF) Test: Tests for the presence of a unit root (stationarity) in time series data.
- Paired Sample t-Test: Tests whether the mean difference between two matched, dependent groups is statistically significantly different from zero.
Correct option: (4) VIF test
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