st: xtabond2 and instruments (HELP)

[robertjbrienza@aol.com]

Dear all,

I'm a newbie with Stata and I'm trying to estimate a dynamic panel data 
model using an unbalanced data set with more than 350 firms over the 
1995 -2000 period. Each firm has a minimum of three consecutive years 
of data. This is the dynamic model:

y_it = y_it-1 , x1_it , x2_it , x3_it, alpha_i alpha_t uit

where alpha_1 and alpha_t represent firm-specific effects and 
time-effects,


All this given, I have two different questions:

1) In my specification, all variables should be treated as endogenous 
and time dummies are included among the independent variables. In 
particular, y_it-2, x1_it-2 , x2_it-2 , x3_it-2 should be used as 
instruments. I'm asking whether the following command string is correct 
in this case. Using the One Step Robust GMM System estimator 
(xtabond2), I should write:

xi:xtabond2 y l.y x1 x2 x3 i.year, robust gmm(y x1 x2 x3, lag(2 2))

Is ii right or incomplete?

----------------------------

2) In the (applied) econometrics article from which I have borrowed 
such procedure, I also read this important note:

"I [the author] have investigated whether the explanatory variables are 
predetermined or strictly exogenous with respect to the error term. To 
do this, I started using instruments dated t-2 for each regressor. 
Later, I added the instrument dated t-1 to analyze the potential bias 
arising from the correlation between x_it-1 and the first-differenced 
error term, delta_uit . To investigate the possibility of strict 
exogeneity we also included the current value, x_it in the instrument 
set. This investigation leads me to conclude that the explanatory 
variables are neither predetermined nor strictly exogenous. I, 
therefore, use instruments dated t-2 in our estimation."

** With respect to the model above, what concrete steps I should do to 
follow this sentence? When the author say that "we added the instrument 
dated t-1 to analyze the potential bias arising from the correlation 
between x_it-1 and the first-differenced error term, delta_uit ", it is 
unclear to me how (and where) he actually analyze the "potential bias" 
between x_it-1 and the first-differenced error term. Is there an 
automatically generated statistics to see? Or something else? And how I 
should modify (step by step) the gmm style options? Cookbook 
suggestions would be very useful, too.


Can anybody offer any assistance to solve these problems?

Looking forward to any response, thank you in advance.

Yours faithfully,

Robert Brienza,
Bocconi U. (Milan, Italy)

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