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From |
"Justina Fischer" <JAVFischer@gmx.de> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: RE: st: predetermined variables with xtabond2 |

Date |
Fri, 15 Jun 2012 22:23:52 +0200 |

Hi not being an expert, you appear to have to decide whether you estimate first differences or not. First differences (al a Dy = da + db + e2) lead to endogeneity of otherwise exogenous (instrumental) variables if you estimated levels instead (y = a +b + + e1). I think this is what the quote says. Best Justina -------- Original-Nachricht -------- > Datum: Fri, 15 Jun 2012 21:15:11 +0200 > Von: "Søren Møller-Larsson" <soren_ml@hotmail.com> > An: statalist@hsphsun2.harvard.edu > Betreff: RE: st: predetermined variables with xtabond2 > 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/ -- Justina AV Fischer, PhD COFIT Fellow World Trade Institute University of Bern homepage: http://www.justinaavfischer.de/ e-mail: javfischer@gmx.de. justina.fischer@wti.org papers: http://ideas.repec.org/e/pfi55.html * * 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: st: predetermined variables with xtabond2***From:*Søren Møller-Larsson <soren_ml@hotmail.com>

**References**:**RE: st: predetermined variables with xtabond2***From:*Søren Møller-Larsson <soren_ml@hotmail.com>

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