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Collinearity and forecasting
Author(s) -
Belsley David A.
Publication year - 1984
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.3980030206
Subject(s) - collinearity , continuance , econometrics , harm , estimation , action (physics) , computer science , statistics , economics , mathematics , psychology , social psychology , physics , management , quantum mechanics
Abstract Old saw: Collinearity will not harm forecasts as long as it continues into the forecast period. If, however, collinearity is unlikely to continue but has already harmed estimation, then corrective action (introduction of prior information) to improve estimates should improve forecasts. This paper marshals the diagnostic information needed to assess collinearity's continuance and, when required, to direct meaningful corrective action. The process is illustrated by an example involving forecasts using energy prices.