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Re: st: No valid instruments for system GMM


From   Phil1899@gmx.de
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: No valid instruments for system GMM
Date   Mon, 01 Aug 2011 13:58:36 +0200

Hi Natalie,

have you checked the difference GMM estimator (Arelano-Bond)? It might be that the Hanson test fails because the additional moment restrictions used by the system estimator are rejected.

Best
Phil

-------- Original-Nachricht --------
> Datum: Mon, 1 Aug 2011 13:24:48 +0200 (CEST)
> Von: natalie.stata@web.de
> An: statalist@hsphsun2.harvard.edu
> Betreff: st: No valid instruments for system GMM

> Dear statalist,
> 
> I would like to estimate an agricultural production function using panel
> data of approximately 20,000 individuals over 20 years. Applying system GMM
> - due to unobserved heterogeneity and simultaneity (inputs and output are
> determined together e.g. due to profit-maximizing behaviour of the firm), I
> estimate the following:
> 
>      xtabond2 y l.y x1 x2 x3 x4 x5, robust gmm(y x4 x5) iv(x1 x2 x3)
> small noconst
> 
> where y is output (crop yields), x1-x3 (e.g. weather) are strictly
> exogenous input variables and x4-x5 are endogenous variables (e.g. fertilisers).
> Furthermore, I added a lagged dependent variable on the right-hand side as
> it is highly significant. This specification passes the autocorrelation
> tests, but not the Sargan test of valid instruments. If I, however, specify
> using lag (18 19) (the maximum nr. of lags possible for my dataset) it passes
> the Sargan test at the 5% level, but do not obtain any significant
> estimates, except for the lagged dependent variable:
> 
>      xtabond2 y l.y x1 x2 x3 x4 x5, lag(18 19) robust gmm(y x4 x5)
> iv(x1 x2 x3) small noconst
> 
> Is there any systematic way of finding valid instruments for the system
> GMM? Or is there another estimator that I can use to handle simultaneity
> where I don't need instruments from outside the dataset (I know there is one
> called "opreg" from Olley and Pakes, but I need to specifiy exit of a firm
> which is not included in my data).
> 
> I would greatly appreciate any comments on this problem!
> 
> Best regards,
> Natalie
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