Updated: Aug 20, 2021

The presence of significant correlation between the independet variables in a regression model. Its effect is to invalidate some of the assumptions on which least squares regression is based, and hence to render inappropriate the use of that method unless modified. The problem of multicollinearity occurs very frequently in econometric studies, and bas been extensively studied in the theory of econometrics.

Reference: The Penguin Dictionary of Economics, 3rd edt.

Sources & references
Risk disclaimer
James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.