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Re: st: Issues with xtabond2


From   "Alan Jenn" <ajenn@andrew.cmu.edu>
To   <statalist@hsphsun2.harvard.edu>
Subject   Re: st: Issues with xtabond2
Date   Mon, 28 Nov 2011 12:35:28 -0500

Thank you everyone for your responses!
My model originally used fixed-effects estimation but since one of the independent variables is a lagged term of the dependent variable, I believe I'm violating the strict exogeneity assumptions which is why I was trying to use a dynamic panel estimator such as GMM. Is there another possible approach that you can recommend for dynamic panel estimation?
Thank you very much,
Alan Jenn

--------------------------------------------------
From: "Christopher Baum" <kit.baum@bc.edu>
Sent: Monday, November 28, 2011 11:58 AM
To: <statalist@hsphsun2.harvard.edu>
Subject: re: st: Issues with xtabond2

<>
Eric said

I just came back to look at your post more closely. With 132 observations and the gmm option without any limit on the number of lags, you are generating a huge number of instruments. This is creating numerical problems. Even if it were not, this affects the staistical efficiency of your results. You may want to try fixed effects, relying on large T theory.


Quite so. The rationale for A-B or Anderson-Hsiao is the mitigation of Nickell bias, which can be severe with T<10, as it is a function of 1/T. As T gets large, Nickell bias ls likely to become inconsequential, so that a standard FE approach (or IV-FE, given that you may want to consider some other regresssors endogenous) would probably suffice.

Kit


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


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