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What can cause multicollinearity in OLS?

asked 2011-04-06 13:52:00 +0000

A SHAZAM User asked:

I am a student at XXX University and am using the Shazam program to create a hedonic pricing model of laptops for a fourth year course.

My problem is that I have used dummy variables to signify the makers of each laptop. When I try to perform the OLS function, I get a message saying "Matrix Inversion failed in row 19". " This usually indicates perfect multicollinearity with variable constant".

I have searched the internet to no avail for an answer. When I run the regression without the dummy variables, the OLS works. How can I perform OLS on my data including the dummy variables? Do I have to specify that they are dummy variables somewhere in the code?

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answered 2011-04-06 13:53:45 +0000

David gravatar image

updated 2012-05-30 12:22:34 +0000

Try using the NOCONSTANT option on the OLS command to remove any constant.

Also make sure you have N-1 dummy variables.

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Asked: 2011-04-06 13:52:00 +0000

Seen: 9,534 times

Last updated: May 30 '12