Also called collinearity (when two predictors in the model has near perfect linear combination of one another)
Multicollinearity: more than two!
Method 1:
In stata, after regression, type vif for variance inflation factor
vif
VIF values greater than 10 need further investigations.
1/VIF (called tolerance value) values smaller than 0.1: need further investigations. In other words, the variable could be seen as a linear combination of other independent variables.
Example of case where multicollinearity exists:
vif = 43
1/vif=0.02
Method 2: Use collin for predictors
Still, look for VIF and tolerance. Also look for ‘condition number’, which is at the bottom. Condition number should not be larger than 9, otherwise, collinearity exists.
