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 / Bontempi, MARIA ELENA; Mammi, Irene. - In: THE STATA JOURNAL. - ISSN 1536-867X. - STAMPA. - 15:4(2015), pp. 1075-1097.
Implementing a strategy to reduce the instrument count in panel GMM
BONTEMPI, MARIA ELENA;MAMMI, IRENE
2015
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.File | Dimensione | Formato | |
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