## Near Singular Matrix Error

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startz
Non-normality and collinearity are NOT problems!
Posts: 3551
Joined: Wed Sep 17, 2008 2:25 pm

### Re: Near Singular Matrix Error

Even if there is heteroskedasticity, the estimated equations should be unbiased. What would you differently if you found there is heteroskedasticity?

Alina03
Posts: 16
Joined: Sat Jul 14, 2018 12:49 am

### Re: Near Singular Matrix Error

What would you recommend to do in this case, as long as I can t perform the test on that 6 variables?

Alina03
Posts: 16
Joined: Sat Jul 14, 2018 12:49 am

### Re: Near Singular Matrix Error

I don t know if there is heteroskedasticity or not. I want to test it.

startz
Non-normality and collinearity are NOT problems!
Posts: 3551
Joined: Wed Sep 17, 2008 2:25 pm

### Re: Near Singular Matrix Error

I would just proceed without the test.

And why do you want to test for heteroskedasticity anyway?

Alina03
Posts: 16
Joined: Sat Jul 14, 2018 12:49 am

### Re: Near Singular Matrix Error

Because I read in an article that the VAR models have to meet the conditions regarding the quality of the residuals - the normal distribution (Normality test), the absence of heteroskedasticity (White heteroskedasticity test) and the lack of autocorrelation of the errors (Autocorrelation LM test).

startz
Non-normality and collinearity are NOT problems!
Posts: 3551
Joined: Wed Sep 17, 2008 2:25 pm

### Re: Near Singular Matrix Error

The article is just wrong.

A VAR is just a collection of least squares regressions. Normality and heteroskedasticity matter for coefficient tests, but usually no one is interested in doing those for a VAR. Autocorrelation does matter-it's usually handled by adding lags to the VAR.

Alina03
Posts: 16
Joined: Sat Jul 14, 2018 12:49 am

### Re: Near Singular Matrix Error

Here is my autocorrelation test. Could I choose the first lag?
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startz
Non-normality and collinearity are NOT problems!
Posts: 3551
Joined: Wed Sep 17, 2008 2:25 pm

### Re: Near Singular Matrix Error

This probably suggests adding one more lag to the VAR. But you have very few observations, so it's not entirely obvious whether you should.

Alina03
Posts: 16
Joined: Sat Jul 14, 2018 12:49 am

### Re: Near Singular Matrix Error

Could I run this model with just one lag?

startz
Non-normality and collinearity are NOT problems!
Posts: 3551
Joined: Wed Sep 17, 2008 2:25 pm

### Re: Near Singular Matrix Error

Perhaps run with one lag and run with two and see if it makes any difference. The real issue is that only having 20 observations limits what you can do.

Alina03
Posts: 16
Joined: Sat Jul 14, 2018 12:49 am

### Re: Near Singular Matrix Error

Thank you so much for all you advices!

Alina03
Posts: 16
Joined: Sat Jul 14, 2018 12:49 am

### Re: Near Singular Matrix Error

Sorry, I forgot. Should I eliminate high correlation between variables before I create the VAR?

startz
Non-normality and collinearity are NOT problems!
Posts: 3551
Joined: Wed Sep 17, 2008 2:25 pm

### Re: Near Singular Matrix Error

No, the VAR is fine with highly correlated variables.

Alina03
Posts: 16
Joined: Sat Jul 14, 2018 12:49 am

### Re: Near Singular Matrix Error

How can I solve the problem if the normality test is p 0.000, in a VAR model?

startz
Non-normality and collinearity are NOT problems!
Posts: 3551
Joined: Wed Sep 17, 2008 2:25 pm

### Re: Near Singular Matrix Error

What do you think the problem is?

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