GMM Xtabond2

[SF Javaheri]

Hi friends,

This is my first experience for GMM. help me, please.

I should examine the relationship between X and Y across US states over the period 1993–2015 using the
System GMM estimator. The lagged DVs, along with X1 and X2,
are treated as endogenous and instrumented for with their lagged first differences. To eliminate the problem of instrument
proliferation, which can invalidate results, I should collapse the instrument matrix and impose instrumental variable lag limits that satisfy
the following conditions: (1) the null of the Hansen J test of over-identifying restrictions is not rejected and is not implausibly perfect
(i.e., 0.05≤p(Hansen) < 1.00); and (2) there is no second-order autocorrelation in the model (i.e., p(AR2) > 0.05) (Roodman,
2009b). I should include the variables (X3, X4, X5 ) as pre-determined controls in all models, as well as fixed state and
year effects. ( Fixed effect and first difference)

I wrote this code But I am not sure it could work.

xtabond2 Y L.Y L2.Y L.X1 Lx2, gmm( X3 X4 X5 L.Y L2.Y X1 X2, eq(diff) lag(1 1)) nolevel robust

Please help me by correct code

Forouzan

[Sebastian Kripfganz]

To include X3 X4 X5 as controls, you also need to specify them in the list of independent variables, not just as instruments. Right now, you are treating X1 X2 as predetermined, not as endogenous. (For endogenous variables, only the second lag onward form valid instruments, not the first lag.) You are not collapsing the instrument matrix. Instead you are curtailing the instruments by specifying a maximum lag order of 1, which seems very restrictive. You also may want to use the two-step instead of the one-step estimator. You do not yet control for year-fixed effects.

More information on GMM estimation of linear dynamic panel models:

• Kripfganz, S. (2019). Generalized method of moments estimation of linear dynamic panel data models. Proceedings of the 2019 London Stata Conference.
• XTDPDGMM: new Stata command for GMM estimation of linear (dynamic) panel data models

As it seems that you are asking for homework help, I cannot provide more detailed help.
Statalist FAQ: Extra advice: 4. Homework

You can find plenty of useful discussions about GMM in this forum by using the Search functionality.

[SF Javaheri]

Dear Sebastian
Could you please guide me as to whether this code is correct or not?
thanks

xtabond2 Y L.Y L2.Y L.X1 Lx2 X3 X4 X5, gmm( L.Y L2.Y X1 X2, lag(.,2), collapse), iv( x3 X4 X5) nolevel robust two