RE: st: predetermined variables with xtabond2

[Søren Møller-Larsson <soren_ml@hotmail.com>]

Dear Suryadipta

Thanks you for your answer. Yes I did indeed. I am aware that the standard treatment of predetermined variables in system GMM is gmmstyle() and to use lags 1 and longer. Please correct me if I am wrong. In "how to xtabond2.." (2009) p. 124 it reads:



	
		
		
	
	
		"ivstyle() also generates one column per variable in System
GMM, following (26). The patterns in (27) can be requested using the equation suboption, as in: iv(w1
w2, eq(level)) and the compound iv(w1 w2, eq(diff)) iv(w1 w2, eq(level))."
So is it just two different methods to treat predetermined variables? If so is there a reason to use one over the other
Thanks againRegards
Soren



	
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> Date: Sun, 27 May 2012 10:10:30 -0400
> Subject: Re: st: predetermined variables with xtabond2
> From: sroy2138@gmail.com
> To: statalist@hsphsun2.harvard.edu
>
> Soren,
> Did you read the following paper (The Stata Journal Volume 9 Number 1:
> pp. 86-136) from the author of this code:
> http://www.stata-journal.com/article.html?article=st0159
>
> I believe that you wil get the answers to your queries in the paper.
>
> Best wishes,
> Suryadipta.
>
> On Sat, May 26, 2012 at 4:49 AM, Søren Møller-Larsson
> <soren_ml@hotmail.com> wrote:
> > Dear all
> >
> > in the Stata help file of xtabond2 it reads the following:
> > "
> >   y_it = x_it * b_1 + w_it * b_2 + u_it  ...
> >
> > x_it is a vector of strictly exogenous covariates (ones dependent on
> >             neither current nor past e_it);
> >
> > w_it is a vector of predetermined covariates (which may include the lag of
> >             y) and endogenous covariates, all of which may be correlated with
> >             the v_i (Predetermined variables are potentially correlated with
> >             past errors.  Endogenous ones are potentially correlated with past
> >             and present errors.);
> > "
> > So to me it looks like predetermined variables are part of the gmmstyle() instruments.
> >
> > However further down the text it is explained how predetermined variables are treated in the ivstyle() instrument matrix:
> >
> >
> >  ..."equation() is useful for proper handling of predetermined variables
> >      used as IV-style instruments in system GMM.  For example, if x is
> >      predetermined, it is a valid instrument for the levels equation since
> >      it is assumed to be uncorrelated with the contemporaneous error term.
> >      However, x becomes endogenous in first differences, so D.x is not a
> >      valid instrument for the transformed equation.  ivstyle(x) would
> >      therefore be inappropriate.  The use of x as an IV-style instrument in
> >      levels only could be specified by iv(x, eq(level))."
> >
> > So my question is, when do I use gmm(h, laglimits(1 .)) and when do I use iv(h, equation(level)) for predetermined h, and what is the difference?
> >
> > Kind regard
> > Soren
> > Aarhus university, Denmark
> >
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