Multicollinearity and interaction

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Multicollinearity and interaction

Postby abc2009 » Tue Nov 15, 2011 1:43 pm

Dear all,

I am performing a linear regression analysis with two independent variables (one binary, one continuous) and there is interaction between them. Adding of interaction variable gives multicollinearity problem with continuous variable, therefore I centered the both variables around the mean and computed the interaction again. Unfortunately the results still showed very high VIF value indicating multicollinearity. What should I do to include the interaction term, but not have multicollinearity problem?

Thanks for any help.

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