This paper shows through regression simulations that, when there are two highly collinear regressors, at least one of which has a simultaneous relationship with the dependent variable, t-ratios typically do not decline to non-significance as text book theory predicts. Coefficients and/or...

Textbook theory predicts that t-ratios decline towards zero in regressions when there is collinearity between two regressors. This paper shows that this often does not occur if the regression suffers from simultaneity or omitted variable bias. With more collinearity, t-ratios generally increase...