Factor-GMM estimation with large sets of possibly weak instruments

Authors:
George Kapetanios;Massimiliano Marcellino
Affiliations:
Department of Economics, Queen Mary, University of London, Mile End Road, London E1 4NS, United Kingdom and EUI - Department of Economics, Via della Piazzuola 43, 50133, Milano, Italy;Department of Economics, Queen Mary, University of London, Mile End Road, London E1 4NS, United Kingdom and EUI - Department of Economics, Via della Piazzuola 43, 50133, Milano, Italy and Bocconi ...
Venue:
Computational Statistics & Data Analysis
Year:
2010

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Abstract

The use of factor analysis for instrumental variable estimation when the number of instruments tends to infinity is analysed. In particular, the focus is on situations where many weak instruments exist and/or the factor structure is weak. Theoretical results, simulation experiments and empirical applications highlight the relevance of Factor-GMM estimation, which is also easily implemented.