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Title:A solution to the problem of too many instruments in dynamic panel data GMM PDF Logo
Authors:Mehrhoff, Jens
Issue Date:2009
Series/Report no.:Discussion Paper Series 1: Economic Studies 2009,31
Abstract:The well-known problem of too many instruments in dynamic panel data GMM is dealt with in detail in Roodman (2009, Oxford Bull. Econ. Statist.). The present paper goes one step further by providing a solution to this problem: factorisation of the standard instrument set is shown to be a valid transformation for ensuring consistency of GMM. Monte Carlo simulations show that this new estimation technique outperforms other possible transformations by having a lower bias and RMSE as well as greater robustness of overidentifying restrictions. The researcher's choice of a particular transformation can be replaced by a data-driven statistical decision.
Subjects:Dynamic panel data
generalised method of moments
instrument proliferation
factor analysis
JEL:C13
C15
C23
C81
ISBN:978-3-86558-577-6
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

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