When the error terms of a regression forecasting model are correlated the problem of multicollinearity occurs.

Question

Quizplus · Accepted Answer

The problem of multicollinearity occurs when the independent variables in a regression model are highly correlated with each other, not when the error terms are correlated. Correlated error terms may lead to other issues such as heteroscedasticity or autocorrelation, but not multicollinearity.

When the Error Terms of a Regression Forecasting Model Are