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I only have 23 obervations. I heard that GMM-IV is usually for large sample. Hence should I use GMM-IV or 2TSLS?

Besides the sample size, what should I also consider when deciding between GMM-IV and 2TSLS?

Thank you

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Both GMM and 2SLS (do not write 2TSLS - TSLS or 2SLS is short-hand for two-stage least squares) are only justified asymptotically, so in large samples, so that will not make a difference.

The key distinction is that GMM uses a more general weighting matrix that yields the efficient estimator also under conditional heteroskedasticity, whereas 2SLS uses a weighting matrix that leads to an efficient estimator only under homoskedasticity.

Both are consistent in either case, however (whether or not consistency is a property that is of much relevance to you, given such a small sample, is another matter).

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  • $\begingroup$ If I understood you correctly, you are saying that GMM-IV can be used as a reliable estimator for small samples? I have 25 quarterly observations and my intention is to use GMM-IV. SInce I'm not an econometrician by profession, I want to be sure that GMM-IV will still provide reliable estimate. $\endgroup$
    – Quirik
    Sep 14 '15 at 8:34
  • $\begingroup$ I definitely did not say that, no. $\endgroup$ Sep 14 '15 at 8:35
  • $\begingroup$ What would you suggest? $\endgroup$
    – Quirik
    Sep 14 '15 at 8:36
  • $\begingroup$ well...little data is a problem, there is no magic way out if you have so little information $\endgroup$ Sep 14 '15 at 8:37

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