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st: Re: GMM or 2SLS with cluster adjustment or others


From   Kit Baum <baum@bc.edu>
To   "Rodrigo Alfaro A." <ralfaro@bcentral.cl>
Subject   st: Re: GMM or 2SLS with cluster adjustment or others
Date   Wed, 14 May 2008 19:11:14 -0400

Rodrigo,

The point I was trying to make is that the fixed effects estimator (e.g. xtivreg, fe) is biased in the presence of a LDV, and so Arellano-Bond should be used in that context. There is nothing to prevent you from using Arellano-Bond in an equation without a LDV, but given the complexity of the A-B methodology (and possibility to generate hundreds of instruments) I would not recommend using it routinely on a static panel data model. In that context it is certainly appropriate to use IV-GMM, as is provided by xtivreg2, fe with the gmm2s option. That is also a GMM estimator which will be more efficient than standard IV.

Best wishes
Kit

Kit Baum, Boston College Economics and DIW Berlin
http://ideas.repec.org/e/pba1.html
An Introduction to Modern Econometrics Using Stata:
http://www.stata-press.com/books/imeus.html


On May 14, 2008, at 18:39 , Rodrigo Alfaro A. wrote:



Kit wrote:
The Arellano-Bond / Arellano-Bover / Blundell-Bond methodology (xtabond,
xtabond2) is appropriate if you have lagged dependent variables, and
unnecessary otherwise.

I am not agree with this statement. Equation (13) in the classic paper
Blundell, Bond, Devereux, and Schiantarelli (1992) "Investment and
Tobin's Q: Evidence from company panel data" Journal of Econometrics 51
(1992) 233-257 does not have a lagged dependent variable, but it is also
estimated by GMM.

Rodrigo.

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