A Note on the Theme of Too Many Instruments*

B-Tier
Journal: Oxford Bulletin of Economics and Statistics
Year: 2009
Volume: 71
Issue: 1
Pages: 135-158

Score contribution per author:

2.011 = (α=2.01 / 1 authors) × 1.0x B-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

The difference and system generalized method of moments (GMM) estimators are growing in popularity. As implemented in popular software, the estimators easily generate instruments that are numerous and, in system GMM, potentially suspect. A large instrument collection overfits endogenous variables even as it weakens the Hansen test of the instruments’ joint validity. This paper reviews the evidence on the effects of instrument proliferation, and describes and simulates simple ways to control it. It illustrates the dangers by replicating Forbes [American Economic Review (2000) Vol. 90, pp. 869–887] on income inequality and Levine et al. [Journal of Monetary Economics] (2000) Vol. 46, pp. 31–77] on financial sector development. Results in both papers appear driven by previously undetected endogeneity.

Technical Details

RePEc Handle
repec:bla:obuest:v:71:y:2009:i:1:p:135-158
Journal Field
General
Author Count
1
Added to Database
2026-01-29