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


From   Kit Baum <baum@bc.edu>
To   statalist@hsphsun2.harvard.edu
Subject   st: Re: Re: GMM or 2SLS with cluster adjustment or others
Date   Thu, 15 May 2008 09:26:23 -0400

Again I would reference Roodman's paper "how to do xtabond2". The Arellano-Bond approach, applied mechanically, can create hundreds of instruments. On p.10 of his paper, he discusses how estimates of the variances can be very poor if too many instruments are used. If used wisely, the A-B estimator or its friends in the DPD stable can be relatively efficient, but if used improperly, a huge 'weak instruments' problem can occur. The standard IV-GMM estimator (e.g. xtivreg2, gmm2s robust bw()) will not be as susceptible to these problems (and to the extent there are weak instruments issues, they can be diagnosed with the built-in tests in -xtivreg2-).


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 15, 2008, at 02:33 , Yuluen wrote:



Is there a citation that suggests Arellano-Bond is not the best option (e.g. not efficient, etc.) when running a model without a LDV? Thanks.
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