ABSTRACT
In this chapter we analyse a situation where some
or all of the explanatory variables in the random
ly varying coefficients model
are collinear. The term ’pe r f e c t 1 m u l t i collin
earity refers to a situation where perfect inter
relationships exist among the explanatory va r i
ables. In this case we will not get a u n i q u e
solution to the generalised least squares normal
equations since the data matrix X of order nxK is
of a rank less than K, and hence the matrix X ’ IT^X
is singular.1 ’High' multicollinearity refers to a
situation where some or all the explanatory vari
ables are ’highly’ but not ’perfectly’ collinear.
