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Re: RE: st: predetermined variables with xtabond2
From
"Justina Fischer" <[email protected]>
To
[email protected]
Subject
Re: RE: st: predetermined variables with xtabond2
Date
Sun, 17 Jun 2012 20:12:21 +0200
Dear Soeren,
I think that KIt Baum (Boston College and DIW Berlin) could help you further - he is usually very good at answering practical panel-related questions.
Bonne chance,
Justina
-------- Original-Nachricht --------
> Datum: Sun, 17 Jun 2012 19:26:16 +0200
> Von: "Søren Møller-Larsson" <[email protected]>
> An: [email protected]
> Betreff: RE: st: predetermined variables with xtabond2
> Dear Justina
>
> Thank you for taking your time.
>
> The -xtabond2-command uses a within-transformation for gmmstyle
> instruments and I have a range of potential predetermined variables. My dependent
> variable is fdi inflows. However, I am not entirely sure of what you are
> asking and I am afraid it may lie beyond my econometric limit.
> After reading "How to xtabond..." by Roodman 2009 and Bond & Blundell 1998
> I was pretty sure potential predetermined variables should be treated as
> GMM style instruments, but I guess I must have missed something.
>
> Thanks again.
>
> /Soren
>
> ----------------------------------------
> > Date: Sat, 16 Jun 2012 19:16:41 +0200
> > From: [email protected]
> > Subject: Re: RE: st: predetermined variables with xtabond2
> > To: [email protected]
> >
> > Dear Soren,
> >
> > the quote says that why x is an instrument for y, D.x is not a valid
> instrument for D.y.
> >
> > I think you have to a) understand better the model (exogenous,
> endogenous factors) you will estimate better and b) know what GMM is doing, what
> kind of transformation it does to the regression model 'you typed in for
> Stata'.
> >
> > Is the estimator for the original equation (a) calculated or does the
> programm estimate some transformation of it (that affects the validity of x,
> and hence the model you have to specify in (a))?
> >
> >
> >
> > best
> >
> > Justina
> >
> > on: "Søren Møller-Larsson" <[email protected]>
> > > An: [email protected]
> > > Betreff: RE: st: predetermined variables with xtabond2
> >
> > > Thanks for answering Justina. However, I am afraid that it does not
> solve
> > > my problem.
> > > I am estimating a system of both difference equations and levels
> equations
> > > that will need proper instruments.
> > >
> > > The standard treatment of a predetermined independent variable, x, is
> > > instrumenting it GMM-style with lag 1 and longer. However, the quote
> from the
> > > Stata help-file seems to describe some special case of instrumenting a
> > > predetermined variable, x, using ivstyle(x, equation(level)). Since
> these two
> > > methods of instrumenting predetermined variables are quite different,
> my
> > > question is, when is it preferable to use the ivstyle(x, eq(level))
> option for
> > > instrumenting predetermined independent variables?
> > >
> > > quote from xtabond2.hlp
> > >
> > > "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
> because 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
> > > ivstyle(x, equation(level))."
> > >
> > > Thanks again
> > > Soren
> > >
> > > ----------------------------------------
> > > > Date: Fri, 15 Jun 2012 22:23:52 +0200
> > > > From: [email protected]
> > > > Subject: Re: RE: st: predetermined variables with xtabond2
> > > > To: [email protected]
> > > >
> > > > Hi
> > > >
> > > > not being an expert, you appear to have to decide whether you
> estimate
> > > first differences or not. First differences (al a Dy = da + db + e2)
> lead to
> > > endogeneity of otherwise exogenous (instrumental) variables if you
> > > estimated levels instead (y = a +b + + e1).
> > > >
> > > > I think this is what the quote says.
> > > >
> > > > Best
> > > >
> > > > Justina
> > > > -------- Original-Nachricht --------
> > > > > Datum: Fri, 15 Jun 2012 21:15:11 +0200
> > > > > Von: "Søren Møller-Larsson" <[email protected]>
> > > > > An: [email protected]
> > > > > Betreff: RE: st: predetermined variables with xtabond2
> > > >
> > > > > Dear all
> > > > >
> > > > > I have put this question forward ones before as seen below, but I
> > > still do
> > > > > not quite understand.
> > > > >
> > > > > Looking at the user-written Stata command -xtabond2- with the
> > > two-stage
> > > > > system gmm option. Considering treatment of a predetermined
> > > independent
> > > > > variable call it x. I have read the "How to Xtabond..." by Roodman
> > > (2009).
> > > > >
> > > > > Standard treatment is the gmm(x, laglimit(1 .)) option with lag 1
> and
> > > > > longer.
> > > > >
> > > > > Now looking at the -xtabond2- help-file in Stata it reads the
> > > following:
> > > > >
> > > > > "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 is this a special case for predetermined variables? Can anybody
> > > explain
> > > > > when to use the iv(x, eq(level)) for predetermined variables?
> > > > >
> > > > > Thank you and enjoy the weekend.
> > > > >
> > > > > Regards Soren
> > > > > Aarhus university
> > > > >
> > > > >
> > > > > ----------------------------------------
> > > > > > Date: Mon, 28 May 2012 09:30:53 -0400
> > > > > > Subject: Re: st: predetermined variables with xtabond2
> > > > > > From: [email protected]
> > > > > > To: [email protected]
> > > > > >
> > > > > > Dear Soren,
> > > > > > I believe that you have got it right. pp.124 of the paper
> contains
> > > the
> > > > > > relevant information to your question. The iv( . ) option is for
> > > > > > strictly exogenous regressors, while the gmm( . ) option is for
> > > > > > predtermined or suspected endogenous variables. Thus, e.g.
> > > > > >
> > > > > > " If w1 is strictly exogenous, w2 is predetermined but not
> strictly
> > > > > > exogenous, and w3 is endogenous, then
> > > > > > - xtabond2 y L.y w1 w2 w3 i.t, gmmstyle(L.y w2 L.w3) ivstyle(i.t
> w1)
> > > > > > twostep robust small orthogonal -
> > > > > > would fit the model with the standard choices of
> instruments—here
> > > with
> > > > > > two-step system GMM, Windmeijer-corrected standard errors,
> > > > > > small-sample adjustments, and orthogonal deviations." (pp. 127)
> > > > > >
> > > > > > The - lag - option is helpful for controlling the number of
> > > > > > instruments- another issue of significance that has also been
> > > > > > discussed by Roodman in his other paper (Roodman, D. M. 2009. A
> note
> > > > > > on the theme of too many instruments. Oxford Bulletin
> > > > > > of Economics and Statistics 71: 135–158).
> > > > > >
> > > > > > Overall, I believe that you are on track!
> > > > > >
> > > > > > Best wishes,
> > > > > > Suryadipta.
> > > > > >
> > > > > > On Sun, May 27, 2012 at 10:37 AM, Søren Møller-Larsson
> > > > > > <[email protected]> wrote:
> > > > > > > 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
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > > ----------------------------------------
> > > > > > >> Date: Sun, 27 May 2012 10:10:30 -0400
> > > > > > >> Subject: Re: st: predetermined variables with xtabond2
> > > > > > >> From: [email protected]
> > > > > > >> To: [email protected]
> > > > > > >>
> > > > > > >> 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
> > > > > > >> <[email protected]> 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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> > > > > > >>
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> > > > > > >
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> > > >
> > > > --
> > > > Justina AV Fischer, PhD
> > > > COFIT Fellow
> > > > World Trade Institute
> > > > University of Bern
> > > >
> > > > homepage: http://www.justinaavfischer.de/
> > > > e-mail: [email protected]. [email protected]
> > > > papers: http://ideas.repec.org/e/pfi55.html
> > > >
> > > >
> > > > *
> > > > * For searches and help try:
> > > > * http://www.stata.com/help.cgi?search
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> > >
> > > *
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> > > * http://www.stata.com/support/statalist/faq
> > > * http://www.ats.ucla.edu/stat/stata/
> >
> > --
> > Justina AV Fischer, PhD
> > COFIT Fellow
> > World Trade Institute
> > University of Bern
> >
> > homepage: http://www.justinaavfischer.de/
> > e-mail: [email protected]. [email protected]
> > papers: http://ideas.repec.org/e/pfi55.html
> >
> >
> > *
> > * For searches and help try:
> > * http://www.stata.com/help.cgi?search
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> > * http://www.ats.ucla.edu/stat/stata/
>
> *
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--
Justina AV Fischer, PhD
COFIT Fellow
World Trade Institute
University of Bern
homepage: http://www.justinaavfischer.de/
e-mail: [email protected]. [email protected]
papers: http://ideas.repec.org/e/pfi55.html
*
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