Use of the principal component method in the maximum likelihood estimation procedure of the logit model |
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Authors: | Eugene White Hiroki Tsurumi |
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Institution: | Rutgers University, New Brunswick, NJ 08903, USA |
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Abstract: | The maximum likelihood estimates of a qualitative response market are solved by an iterative procedure. When severe multicollinearity exists among the explanatory variables, this procedure may fail to converge. In this note, using a bank-failure model, we demonstrate how the principle component method can make the iterative procedure converge when it fails to do so in the untransformed model. |
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