What are the effects of two independent variables that are highly corr

What are the effects of two independent variables that are highly correlated? What can be done to remedy the problem?

What will be an ideal response?

ANSWER

The high correlation between two variables is called multicollinearity. Multicollinearity results in the standard errors of the coefficients of the independent variables to be inflated, yielding statistically insignificant t-statistics. One could drop one of the two variables and re-estimate the regression model to examine the change in the statistical significance of the remaining regression coefficients.