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Dear Dr. Bruno,
I'm Andrea Sisto, a PHD student in Economics at the Univeristy of Turin. As I'm working with Prof. Zanola, I thank you also on behalf of Roberto. Our problem is that we have to account for heterogeneity in panel. This heterogeneity should be captured introducing cross-section dummy variable. But standard GMM DP estimators drop individual effect with first-difference. For ivreg2, the question was whether a FE2SLS, with a model in level with Cross section dummy variables, was a correct way to deal with dynamic  panel (our strategy was to simply instrument the dependent variable with some exogenous instruments).
Thank you for your suggestion
AS





> Roberto Zanola <zanola@sp.unipmn.it>:
> 
> > Dear all,
> > we need to estimate a dynamic short panel (T=6 and N=20). Two possibilities:
> > (1) lsdvc
> 
> This is implemented in Stata by the user written code -xtlsdvc-. 
> It behaves relatively better than IV-GMM estimators in small panel
> data-sets, in terms of both bias and root mean squared error,
> but needs strictly exogeneity of regressors and neither 
> heteroskedasticity or serial correlation of disturbances.
>  
> > (2) ivreg2 with dummies
> 
> I'm not clear what estimator Roberto has in mind in this
> case. -ivreg2- is a flexible routine that can implement many 
> IV estimators and tests, and clearly not all of them are appropriate
> methods for dynamic models. A simple N-consistent estimator for
> dynamic panel data models that can be supported by -ivreg2- is that 
> developed by Anderson and Hsiao (1982). It is carried out by taking 
> variables in first-differences and using the dependent variable 
> lagged two times, y(t-2), as an instrument for Dy(t-1). One can 
> also deal with endogenous x's in this case, provided valid instruments 
> are available. However, Monte Carlo evidence demonstrates that the AH 
> estimator, although virtually unbiased, is rather imprecise in 
> small samples (very large root mean squared error).
> 
> References
> Anderson, T. W. and C. Hsiao. 1982. Formulation and Estimation 
> of Dynamic Models Using Panel Data. Journal of Econometrics 
> 18: 570–606
> 
> Roberto may also find it useful my paper on small panel data-sets, 
> downloadable from
> 
> http://ideas.repec.org/p/cri/cespri/wp165.html
> 
> 
> Giovanni
> (author of -xtlsdvc-) 
> 
> > 
> > *
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> > 
> 
> 
> -- 
> Giovanni S.F. Bruno
> http://ideas.repec.org/e/pbr136.html
> Istituto di Economia Politica, Università Bocconi
> Via U. Gobbi, 5, 20136 Milano
> Italy
> tel. + 02 5836 5411
> fax. + 02 5836 5438
> *
> *   For searches and help try:
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> *   http://www.ats.ucla.edu/stat/stata/
> 


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