Solved – the difference between VIF and stepwise regression

multicollinearitystepwise regressionvariance-inflation-factor

What is the difference between the variance inflation factor (VIF) and stepwise regression as both help in detecting multicollinearity? What variables are different while running both techniques?

Best Answer

VIF and stepwise regression are two different beasts. Stepwise regression is an exercise in model-building, whereas computing VIF is a diagnostic tool done post-estimation to check for multicollinearity. Therefore, there is no answer to the second part of your question ("What variables are different while running both techniques?"), because VIF is not a model-building technique.

With stepwise regression, you are either adding (forward) or deleting (backward) variables from the model and seeing how estimates change. Typically, variables are "kicked out" of the model if the p-values do not cross a certain threshold pre-set by the researcher (e.g. if $p>0.10$).

VIF is done when you already have a model to work with. Calculation of VIF is fairly straightforward. Given the model:

$Y = \beta_0 + \beta_1X_1 + \beta_2X_2 +\beta_3X_3 +\beta_4X_4 +\epsilon$

You can calculate the VIF of each parameter estimate $i$ (e.g. $\hat\beta_1$,$\hat\beta_2$, $...$ ,$\hat\beta_i$) using the formula $VIF_i = 1/(1-R_i^2)$ where $R_i^2$ is the $R^2$ from a model predicting $X_i$ using all other covariates as predictors, e.g.,

$X_1 = \delta_0 + \delta_2X_2 +\delta_3X_3 +\delta_4X_4 +\nu$