Understanding Multicollinearity

Easy Multiple Regression Analysis Multicollinearity

In a multiple regression analysis involving the variables X, Y, and Z, the analyst finds that the correlation coefficient between X and Y is significantly high, and the correlation between X and Z is also high. The analyst is concerned about the implications this might have on the reliability of the regression coefficients.

Which of the following statements best describes the issue of multicollinearity in this context?

Multicollinearity can inflate the variance of the estimated regression coefficients, making them unstable.

Multicollinearity ensures that the estimated coefficients are unbiased.

Multicollinearity implies that the independent variables are irrelevant to the dependent variable.

Hint

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