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st: proxy-variables

From   Kai Kirchesch <>
Subject   st: proxy-variables
Date   Fri, 25 Jun 2004 12:46:01 +0200

I am performing fixed effects and gmm panel regressions with xtreg and xtabond. One of the right-hand variables is calculated with another model (a simple linear regression model). Is the fixed effects model and the gmm model still valid by using such a proxy variable, or do I have to take into account that these models are not valid anymore. Possible evidence for non-validity may be the fact that simple ols regressions perform as well as the more complicated procedures, which means that there is no efficiency gain in using the latter. If this is the case, what can I do instead of these models, or is there a way to account for this kind of proxy variables? Is there any literature on proxy variables and their problems in general?

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