The problem of instrument proliferation and its consequences-overfitting of the endogenous explanatory variables, biased instrumental-variables and generalized method of moments estimators, and weakening of the power of the overidentification tests-are well known. This article introduces a statistical method to reduce the instrument count. Principal component analysis is applied on the instrument matrix, and the principal-component analysis scores are used as instruments for the panel generalized method of moments estimation. This strategy is implemented through the new command pca2.

Implementing a strategy to reduce the instrument count in panel GMM

MAMMI, Irene
2015-01-01

Abstract

The problem of instrument proliferation and its consequences-overfitting of the endogenous explanatory variables, biased instrumental-variables and generalized method of moments estimators, and weakening of the power of the overidentification tests-are well known. This article introduces a statistical method to reduce the instrument count. Principal component analysis is applied on the instrument matrix, and the principal-component analysis scores are used as instruments for the panel generalized method of moments estimation. This strategy is implemented through the new command pca2.
2015
15
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10278/3691380
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