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st: xtabond2: which cross-sections should be used with instruments lagged3+ periods


From   Marcello Pagano <pagano@hsph.harvard.edu>
To   statalist@hsphsun2.harvard.edu
Subject   st: xtabond2: which cross-sections should be used with instruments lagged3+ periods
Date   Sun, 04 Sep 2005 12:02:20 -0400

For Alessandra:

From: alessandra guariglia

Dear All;

I have the following questions:

I have an unbalanced panel and need to estimate a static investment Equation. I need to use endogenous variables lagged 3 and 4
times as instruments. I therefore use the following command:

xtabond2 ik cfk y11-y118 , gmm(ik cfk, laglimits (3 4) ) iv(y11-y118 ) noleveleq robust small (ik is investment; cfk, cash flow; y11-y118, time dummies)

I notice that when I run this command, Stata uses all the observations in the sample in estimation, except the first one for each firm (which is obviously lost due to first-differencing).

My question is the following: when instruments lagged 3 and 4 times are used as instruments shouldn't the first three cross-sections for each firm be automatically dropped? The reason why I am asking is that for those equations corresponding to the first-three cross-sections only time dummies would be used as instruments.

I also noticed that if I use a balanced panel and run the 2 commands:

xtabond2 ik cfk y11-y118 , gmm(ik cfk, laglimits (3 4) ) iv(y11-y118) noleveleq robust small xtabond2 ik cfk y11-y118 if index>3 , gmm(ik cfk, laglimits (3 4) ) iv(y11-y118 ) noleveleq robust small

(where index takes values 1, 2, 3, 4 etc. within each firm), I get the same one-step estimates, whereas I get very different estimates when I run the same commands on an unbalanced panel. Why do you think this is the case?

Any help would be greatly appreciated

Alessandra
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