Answers are grounded in this paper and cite their sources.
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.
No takes yet. Share an insight, caveat, or question.
Bontempi et al. (2015) studied this question.
Synapse has enriched 10 related papers. Consider them for comparative context: