'No collinearity' *means* the X variables are uncorrelated!
The basic OLS method assumes the variables are uncorrelated (as you say). In
practice there is usually some correlation, but the estimates are reasonably
robust to this. If there is *substantial* collinearity you are in trouble.
Alan
James Eales wrote:
> Actually Gujarati is just listing his version of the assumptions which
> guarantee that OLS is BLUE. One of these is that there is no
> collinearity between the X variables. By this he means that the matrix
> of independent variables must have full rank, otherwise OLS estimates
> cannot be calculated. He is not assuming that the Xs are uncorrelated.
>
> --
> James Eales
> Dept. of Agricultural Economics
> Purdue University
> [EMAIL PROTECTED]
> 765/494-4212
>
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--
Alan McLean ([EMAIL PROTECTED])
Department of Econometrics and Business Statistics
Monash University, Caulfield Campus, Melbourne
Tel: +61 03 9903 2102 Fax: +61 03 9903 2007
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