Clarifying the role of mean centring in multicollinearity of interaction effects

Source abstract

Moderated multiple regression (MMR) is frequently employed to analyse interaction effects between continuous predictor variables. The procedure of mean centring is commonly recommended to mitigate the potential threat of multicollinearity between predictor variables and the constructed cross‐product term. Also, centring does typically provide more straightforward interpretation of the lower‐order terms. This paper attempts to clarify two methodological issues of potential confusion. First, the positive and negative effects of mean centring on multicollinearity diagnostics are explored. It is illustrated that the mean centring method is, depending on the characteristics of the data, capable of either increasing or decreasing various measures of multicollinearity. Second, the exact reason why mean centring does not affect the detection of interaction effects is given. The explication shows the symmetrical influence of mean centring on the corrected sum of squares and variance inflation factor of the product variable while maintaining the equivalence between the two residual sums of squares for the regression of the product term on the two predictor variables. Thus the resulting test statistic remains unchanged regardless of the obvious modification of multicollinearity with mean centring. These findings provide a clear understanding and demonstration on the diverse impact of mean centring in MMR applications.