Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/159799
Authors: 
Bontempi, Maria Elena
Mammi, Irene
Year of Publication: 
2014
Series/Report no.: 
Quaderni - Working Paper DSE 960
Abstract: 
The problem of instrument proliferation and its consequences (overfitting of the endogenous explanatory variables, biased IV and GMM estimators, weakening of the power of the overidentification tests) are well known. This paper introduces a statistical method to reduce the instrument count. The principal component analysis (PCA) is applied on the instrument matrix, and the PCA scores are used as instruments for the panel generalized method-of-moments (GMM) estimation. This strategy is implemented through the new command pca2.
JEL: 
C13
C15
C33
C36
C63
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/3.0/
Document Type: 
Working Paper

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