SYS GMM - Hansen Test with a lot of instruments, is this correct ?

[Fleur Van Crombrugge]

Hi Stata Forum,

I have a question about SYS GMM
My analysis is the relationship between GHG (greenhouse gas emissions) and total Population, population density, GDP per capita and gva-shares between 2002 and 2018 for almost all European nuts 3 regions.

To analyse the relationship for my panel, I used the following command:
xtabond2 ln_edgar L.ln_edgar L(0/1).(ln_pop_density ln_pop_tot geo2 ln_gdp_pps_hab ln_gdp_pps_hab_sq gva_a_per gva_be_per gva_f_per gva_gj_per) i.year, gmmstyle(L.(ln_edgar ln_pop_density ln_pop_tot geo2 ln_gdp_pps_hab ln_gdp_pps_hab_sq gva_a_per gva_be_per gva_f_per gva_gj_per)) ivstyle(i.year, equation(level)) twostep small

However, I have many a lot of instruments (1258), almost the number of regions (i) but I have 19580 observations.. Is this correct? My Hansen test is 0.369 but when I add "collapse", Hansen's test drops to 0.0000

What could this mean? How is this interpreted?
Is there an error in my code?

The results are in the attached pdf

Thank you in advance for your attention and help.

Fleur

[Sebastian Kripfganz]

The Hansen test is not reliable when there is such a huge number of instruments. With the collapse option, the test becomes much more reliable; see Roodman (2009). A note on the theme of too many instruments. Oxford Bulletin of Economics and Statistics 71 (1), 135-158.

More on GMM estimation of dynamic panel models in Stata:

• Kripfganz, S. (2019). Generalized method of moments estimation of linear dynamic panel data models. Proceedings of the 2019 London Stata Conference.

[Adam Abdulrahman]

hi! I've tried downloading xtabond2 yet stata still wont recognize it. Any ideas on how to fix this?