Hello, Dahlia,
I'm also currently using xtabond2, and have similar questions as
yours. I think using only one variable (like cash flow) as gmm
instruments is O.K., and using instruments dated at t-2 (or t-3) only
is fine too because you don't want to include too many invalid
instruments in the estimation. Moreover I think firm level
heterogeneity is already accounted for once you classify firm as ID
variable in xtabond2.
However, I also don't know the robustness of results when I change the
specification of gmm instruments: sometimes I got big p-value (0.96)
for the Hansen J test and sometimes 0. The coefficients are sometimes
significant and sometimes not even the Hansen J tests do not reject
validity of instruments in both cases. I'm puzzled as to which results
to trust.
If anyone here knows xtabond2 better, please let us know. Thanks!
Jack
On 5/24/05, [email protected] <[email protected]> wrote:
> Hi,
> I would very much appreciate your help and comments on my questions on xtabond2
>
> I am trying to estimate a dynamic panel data model using an unbalanced data set
> with more than 50,000 observations, over 6,000 firms in 37 countries over the
> 1991 ? 2002 period. Each firm has a minimum of four consecutive years of data.
>
> I am estimating the model using the One Step Robust GMM System estimator using
> the command xtabond2 in STATA 8.0.
> I use year, industry and country dummies to control for time, industry and
> country specific effects.
>
> I am using STATA Command as follows:
>
> xi:xtabond2 Investmentratio l.Investmentratio Isquared Salesratio CFratio i.year
> i.Industry i.country, robust gmm(Investmentratio Salesratio CFratio, lag(2 3))
>
> where
> Investmentratio= ratio of Investment to capital= dependent variable
> l.Investmentratio = lagged dependent variable = (lagged Investment ratio)
> Isquared = square of lagged dependent variable
> CFratio = ratio of Cash Flow to capital
> Salesratio= ratio of sales to capital
>
> I am treating the lagged dependent variable, the cash flow ratio and the sales
> ratio as endogenous (by including all of them in the gmm style option).
>
> The problem I am facing is that the validity of the instruments is rejected by
> the Hansen J test of over- identifying restrictions. The number of instruments
> is 88.
>
> Chi2(31)=196.04 Prob>chi2=0.000
>
> None of the coefficients is statistically significant.
>
> I tried running the above equation for each country at a time. Surprisingly, I
> got P-values = 0 for the Hansen J test of over- identifying restrictions for
> five developed countries: UK, Italy, Germany, France and Australia. I tried
> running the equation for the whole data set, while excluding these five
> countries but still the validity of instruments got rejected with P-values=0.
>
> I would very much appreciate your help on the following questions:
>
> Question (1): Do I have to instrument for each endogenous variable (Investment
> ratio, Cash Flow ratio and Sales ratio) by including each one of them in the gmm
> list of instruments as I already have?, or can I use only one of them as
> instrument in the gmm style option ?.
>
> For instance, can I only use the cash Flow ratio as instrument with lags (2 3)
> as follows:
>
> Command: (here I am only accounting for time specific effects)
>
> xi:xtabond2 Investmentratio l.Investmentratio Isquared Salesratio CFratio i.year
> , robust gmm(CFratio, lag(2 3))
>
> I tried the above specification, and the validity of the instruments get
> accepted (P value is 0.8).
>
> Hansen test of overid. restrictions: chi2(14) = 8.82 Prob > chi2 = 0.842
>
> Question (2): Is a P-value of 0.8 usual to get in a test for over- identifying
> restrictions ?.
>
> Question (3): Can I use the instruments dated (t-2) only or the instruments
> dated (t-3) only ?.
>
> If yes, what would be the specified lags in that case ?.
>
> Question (4): How to control for firm specific effects ?. Are they automatically
> accounted for once I use firm/ country as panel identifier in STATA ?.
>
> I would very much appreciate your help and time,
>
> Thank you in advance,
> Best regards,
>
>
> Dahlia Anwar El- Hawary
> Consultant
> Financial Sector Operations and Policy Department
> World Bank
> Tel: 202 473 5238
>
> *
> * For searches and help try:
> * http://www.stata.com/support/faqs/res/findit.html
> * http://www.stata.com/support/statalist/faq
> * http://www.ats.ucla.edu/stat/stata/
>
*
* For searches and help try:
* http://www.stata.com/support/faqs/res/findit.html
* http://www.stata.com/support/statalist/faq
* http://www.ats.ucla.edu/stat/stata/
