THE RELATIONSHIP BETWEEN RIDGE REGRESSION AND THE MINIMUM MEAN SQUARE ERROR ESTIMATOR OF CHIPMAN.

The article discusses the relationship between ridge regression (RR) and the minimum mean square error (MMSE) estimator of Chipman. It provides information on the method of ridge regression. The assumptions on MMSE and RR and the measures of multicollinearity of the normal matrix are presented. An illustration of the Chipman estimator is given. It has been shown that both ridge regression and Chipman's method of estimation have something to offer the econometrician when the data re highly collinear. It also shows the difficulties in using RR.