A useful diagnostic measure for imperfect multicollinearity is the:
A) z-score.
B) t-test.
C) variance inflation factor.
D) likelihood ratio test.

Question

Quizplus · Accepted Answer

The variance inflation factor (VIF) is a useful diagnostic measure for imperfect multicollinearity. VIF calculates how much the variance of an estimated regression coefficient is increased due to multicollinearity in the data. A value of 1 indicates no multicollinearity, and values above 1 indicate increasing levels of multicollinearity. It is suggested that a VIF value above 5 or 10 indicates problematic multicollinearity. Therefore, using VIF as a diagnostic measure can help address the issue of imperfect multicollinearity in regression models.

A Useful Diagnostic Measure for Imperfect Multicollinearity Is The