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Re: st: RE: difficulty in explaining GMM sargan overid

From   Clive Nicholas <>
Subject   Re: st: RE: difficulty in explaining GMM sargan overid
Date   Fri, 25 Jun 2010 05:05:36 +0100

Binta Sarat replied to Mark Schaffer:


> Just wanted to clarify, are you suggesting using 2sls? And if yes, from your response it seems like when I use 2sls, I might end up with similar output to OLS, is this correct? Please help clarify this. I'm sorry it sounds really lame,but Im new to most of these things and Im trying to not get confused with them.

I suspect your tiredness is preventing you from following what Mark
wrote closely enough! He's simply saying that you're using far too
many instrumental variables (350) for the observations you've got to
play with (209).

Remember that, in many ways, IVs are not much different from any other
variables: adding each one to your model will consume 1 degree of
freedom. Since you don't have nearly enough data to handle this,
you'll need to either:

(1) substantially increase your Ns, if that's possible; or
(2) substantially reduce your instruments, exactly as Mark advises.

As for whether "to 2SLS or not to 2SLS?", we don't know your data to
really advise you on IV model selection, and in any case, this really
is your call.

Clive Nicholas

[Please DO NOT mail me personally here, but at
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"My colleagues in the social sciences talk a great deal about
methodology. I prefer to call it style." -- Freeman J. Dyson.

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