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From |
Søren Møller-Larsson <soren_ml@hotmail.com> |

To |
<statalist@hsphsun2.harvard.edu> |

Subject |
RE: st: predetermined variables with xtabond2 |

Date |
Fri, 15 Jun 2012 21:15:11 +0200 |

Dear all I have put this question forward ones before as seen below, but I still do not quite understand. Looking at the user-written Stata command -xtabond2- with the two-stage system gmm option. Considering treatment of a predetermined independent variable call it x. I have read the "How to Xtabond..." by Roodman (2009). Standard treatment is the gmm(x, laglimit(1 .)) option with lag 1 and longer. Now looking at the -xtabond2- help-file in Stata it reads the following: "equation() is useful for proper handling of predetermined variables used as IV-style instruments in system GMM. For example, if x is predetermined, it is a valid instrument for the levels equation since it is assumed to be uncorrelated with the contemporaneous error term. However, x becomes endogenous in first differences, so D.x is not a valid instrument for the transformed equation. ivstyle(x) would therefore be inappropriate. The use of x as an IV-style instrument in levels only could be specified by iv(x, eq(level))." So is this a special case for predetermined variables? Can anybody explain when to use the iv(x, eq(level)) for predetermined variables? Thank you and enjoy the weekend. Regards Soren Aarhus university ---------------------------------------- > Date: Mon, 28 May 2012 09:30:53 -0400 > Subject: Re: st: predetermined variables with xtabond2 > From: sroy2138@gmail.com > To: statalist@hsphsun2.harvard.edu > > Dear Soren, > I believe that you have got it right. pp.124 of the paper contains the > relevant information to your question. The iv( . ) option is for > strictly exogenous regressors, while the gmm( . ) option is for > predtermined or suspected endogenous variables. Thus, e.g. > > " If w1 is strictly exogenous, w2 is predetermined but not strictly > exogenous, and w3 is endogenous, then > - xtabond2 y L.y w1 w2 w3 i.t, gmmstyle(L.y w2 L.w3) ivstyle(i.t w1) > twostep robust small orthogonal - > would fit the model with the standard choices of instruments—here with > two-step system GMM, Windmeijer-corrected standard errors, > small-sample adjustments, and orthogonal deviations." (pp. 127) > > The - lag - option is helpful for controlling the number of > instruments- another issue of significance that has also been > discussed by Roodman in his other paper (Roodman, D. M. 2009. A note > on the theme of too many instruments. Oxford Bulletin > of Economics and Statistics 71: 135–158). > > Overall, I believe that you are on track! > > Best wishes, > Suryadipta. > > On Sun, May 27, 2012 at 10:37 AM, Søren Møller-Larsson > <soren_ml@hotmail.com> wrote: > > Dear Suryadipta > > > > Thanks you for your answer. Yes I did indeed. I am aware that the standard treatment of predetermined variables in system GMM is gmmstyle() and to use lags 1 and longer. Please correct me if I am wrong. In "how to xtabond2.." (2009) p. 124 it reads: > > > > > > > > > > > > > > > > > > "ivstyle() also generates one column per variable in System > > GMM, following (26). The patterns in (27) can be requested using the equation suboption, as in: iv(w1 > > w2, eq(level)) and the compound iv(w1 w2, eq(diff)) iv(w1 w2, eq(level))." > > So is it just two different methods to treat predetermined variables? If so is there a reason to use one over the other > > Thanks againRegards > > Soren > > > > > > > > > > ---------------------------------------- > >> Date: Sun, 27 May 2012 10:10:30 -0400 > >> Subject: Re: st: predetermined variables with xtabond2 > >> From: sroy2138@gmail.com > >> To: statalist@hsphsun2.harvard.edu > >> > >> Soren, > >> Did you read the following paper (The Stata Journal Volume 9 Number 1: > >> pp. 86-136) from the author of this code: > >> http://www.stata-journal.com/article.html?article=st0159 > >> > >> I believe that you wil get the answers to your queries in the paper. > >> > >> Best wishes, > >> Suryadipta. > >> > >> On Sat, May 26, 2012 at 4:49 AM, Søren Møller-Larsson > >> <soren_ml@hotmail.com> wrote: > >> > Dear all > >> > > >> > in the Stata help file of xtabond2 it reads the following: > >> > " > >> > y_it = x_it * b_1 + w_it * b_2 + u_it ... > >> > > >> > x_it is a vector of strictly exogenous covariates (ones dependent on > >> > neither current nor past e_it); > >> > > >> > w_it is a vector of predetermined covariates (which may include the lag of > >> > y) and endogenous covariates, all of which may be correlated with > >> > the v_i (Predetermined variables are potentially correlated with > >> > past errors. Endogenous ones are potentially correlated with past > >> > and present errors.); > >> > " > >> > So to me it looks like predetermined variables are part of the gmmstyle() instruments. > >> > > >> > However further down the text it is explained how predetermined variables are treated in the ivstyle() instrument matrix: > >> > > >> > > >> > ..."equation() is useful for proper handling of predetermined variables > >> > used as IV-style instruments in system GMM. For example, if x is > >> > predetermined, it is a valid instrument for the levels equation since > >> > it is assumed to be uncorrelated with the contemporaneous error term. > >> > However, x becomes endogenous in first differences, so D.x is not a > >> > valid instrument for the transformed equation. ivstyle(x) would > >> > therefore be inappropriate. The use of x as an IV-style instrument in > >> > levels only could be specified by iv(x, eq(level))." > >> > > >> > So my question is, when do I use gmm(h, laglimits(1 .)) and when do I use iv(h, equation(level)) for predetermined h, and what is the difference? > >> > > >> > Kind regard > >> > Soren > >> > Aarhus university, Denmark > >> > > >> > * > >> > * For searches and help try: > >> > * http://www.stata.com/help.cgi?search > >> > * http://www.stata.com/support/statalist/faq > >> > * http://www.ats.ucla.edu/stat/stata/ > >> > >> * > >> * For searches and help try: > >> * http://www.stata.com/help.cgi?search > >> * http://www.stata.com/support/statalist/faq > >> * http://www.ats.ucla.edu/stat/stata/ > > > > * > > * For searches and help try: > > * http://www.stata.com/help.cgi?search > > * http://www.stata.com/support/statalist/faq > > * http://www.ats.ucla.edu/stat/stata/ > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: RE: st: predetermined variables with xtabond2***From:*"Justina Fischer" <JAVFischer@gmx.de>

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