Biasing Estimator to Mitigate Multicollinearity in Linear Regression Model

Abstract

A new two-parameter estimator was developed to combat the threat of multicollinearity for the linear regression model. Some necessary and sufficient conditions for the dominance of the proposed estimator over ordinary least squares (OLS) estimator, ridge regression estimator, Liu estimator, KL estimator, and some two-parameter estimators are obtained in the matrix mean square error sense. Theory and simulation results show that, under some conditions, the proposed two-parameter estimator consistently dominates other estimators considered in this study. The real-life application result follows suit.