/* Here is an example of multicollinearity since the correlation between the populaton and the gross national product since more labor forces will make more products */

clear all
use http://bigblue.depaul.edu/jlee141/econdata/eco304/housedemand.dta

/* Correlation among the independent variables */
corr mortgage gnp pop

/* Multiple Regression with highly correlated independent variables */
regr housebuilt mortgage gnp pop
vif

/* Compare the following regression models */
regr housebuilt mortgage gnp
regr housebuilt mortgage pop

/* How to treat the high multicollinearity? - combination of variables */
gen pc_housebuilt = housebuilt / pop
gen pc_gnp = gnp / pop

regr pc_housebuilt mortgage pc_gnp