Implementing a strategy to reduce the instrument count in panel GMM

• Autores: Maria Elena Bontempi, Irene Mammi
• Localización: The Stata journal, ISSN 1536-867X, Vol. 15, Nº. 4, 2015, págs. 1075-1097
• Idioma: inglés
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• Resumen

  • he 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.