GMM Estimation of Panel Probit Models : Nonparametric Estimation of the Optimal Instruments

The generalised method of moments (GMM) is combined with the nonparametric estimation of the instrument matrix to obtain an easily computable estimator for the panel probit model. It is based on the specification of the conditional mean of the binary dependent variable in each period, and therefore high-dimensional numerical integrations are avoided. An extensive Monte Carlo study compares this estimator with other estimators proposed in the literature and shows that it has good small sample properties and that the efficiency loss compared to full information maximum likelihood is quite small. Some of the estimators are applied to two microeconometric examples.