This paper reviews various treatments of non-metric variables in Partial Least Squares (PLS) and Principal Component Analysis (PCA) algorithms. The performance of different treatments is compared in the extensive simulation study under several typical data generating processes and...

The problem of instrument proliferation and its consequences (overfitting of the endogenous explanatory variables, biased IV and GMM estimators, weakening of the power of the overidentification tests) are well known. This paper introduces a statistical method to reduce the instrument count. The...