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Thread: near singular matrix error (dummy variable trap)

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    near singular matrix error (dummy variable trap)




    Hi,

    Im running a regression in eviews and have 11 dummy variables for 12 different industries. As i already dropped one i do not understand why i am reviewing a "near singular matrix error" (eviews) indicating perfect colinearity . Futher, I eliminated another 4 dummy variables to finally get to an result. Any ideas what i can do about that if i want to control for the 12 industries?

    Thank you very much in advance

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    Phineas Packard
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    Re: near singular matrix error (dummy variable trap)

    Something is wrong here. Could you give more information on the model. Is it possible that you accidently have a linear combination of variables in your model somewhere.

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    Re: near singular matrix error (dummy variable trap)

    I figured the problem. It seems i have not enough observations for the 12 different industries

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    Re: near singular matrix error (dummy variable trap)


    How many observations do I need if there are 645 different variables to avoid "nearly singular matrix error"? Please help.

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