Re: st: No valid instruments for system GMM

[natalie.stata@web.de]

Hi Phil,

thank you for your quick response.

I estimated the same model with the difference GMM, and the Hansen test passes with laglimits set at 16 and i get much better results.

I am very new to the GMM estimator and don't know if this is the right place to ask about this, but what exactly does the GMM-style instrument option laglimits(a b) (mentioned in xtabond2) mean. And what happens if I don't specify it?

For example does

 xtabond2 y l.y x1 x2 x3 x4 x5, robust gmm(l.y x4 x5, lag(16 17)) iv(x1 x2 x3)

mean that at maximum yt-1 is instrumented by yt-16 ?

I apologize for asking such a question.

Best, natalie


-----Ursprüngliche Nachricht-----
Von: Phil1899@gmx.de
Gesendet: Aug 1, 2011 1:58:36 PM
An: statalist@hsphsun2.harvard.edu
Betreff: Re: st: No valid instruments for system GMM

>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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