Use of the principal component method in the maximum likelihood estimation procedure of the logit model

Eugene White, Hiroki Tsurumi

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
Pages (from-to)43-48
Number of pages6
JournalEconomics Letters
Volume12
Issue number1
DOIs
StatePublished - 1983

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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