Hi guys
I have a multiple linear regression looking like this : Y = Var1 (dummy) + Var 2 + Var 3 + Var 4 + Var 5 (fixed effect dummies for years)
I would like to test for multicollinarity as i am checking if the underlying assumptions are satisfied.
To do this i know two possible ways: do a correlation matrix and check if any pairwise correlations are too high.. But as far i understand, this can not be done for the dummy variable, am i correct with this?
So instead of doing the correlation matrix i used Stata to calculate ViF scores. I know ViF scores above 10 should be investigated, but i am wondering if this also is the case for the fixed effect dummies? For some of the fixed effect dummies representing a year i get a ViF score above 10. Should this be a concern or should i only look at the ViF scores for the explanatory variables?
Sorry for the long question: Short version is if ViF scores for fixed effect dummies should be included in the analysis of multicollinarity, or if i should only be looking at ViF scores for the explanatory variables?
Thanks a lot in advance!
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