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Discussion Paper Details

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Title: Factor-GMM Estimation with Large Sets of Possibly Weak Instruments

Author(s): George Kapetanios and Massimiliano Marcellino

Publication Date: March 2010

Keyword(s): DSGE models, Factor models, GMM, Instrumental variables, Principal components and weak instruments

Programme Area(s): International Macroeconomics

Abstract: This paper analyses the use of factor analysis for instrumental variable estimation when the number of instruments tends to infinity. In particular, we focus 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.

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Bibliographic Reference

Kapetanios, G and Marcellino, M. 2010. 'Factor-GMM Estimation with Large Sets of Possibly Weak Instruments'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7726