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RE:st: Part II: An error in the xtabond-description
I agree that S1 uses 1-step residuals. The problem is about S2 (last formula at
page 32 in the xt manual), which is based on A2 that necessarily uses 1-step
residuals. This is not the 2-step Sargan in Arellano and Bond (1991) paper,
formula (10) p. 282 that employs 2-step residuals.
> While it is possible to define a Sargan statistic that uses the one-step
> moment conditions and the two-step weighting matrix, this is not the
> one-step Sargan test suggested by Arellano and Bond (1991). The one-step
> Sargan statistic reported by -xtabond- is the s_1 statistic suggested by
> Arellano and Bond (1991) page 282, it uses the one-step residuals.
> Arellano, M. and Bond, S. (1991) "Some tests of specification for panel
> Monte Carlo evidence and an application to Employment Equations", The Review
> of Economic Studies, 58(2) 277-297.
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