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st: xtabond2: gmm in levels only meaningful?


From   "Niko Wrede" <wrede@wiso.uni-koeln.de>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: xtabond2: gmm in levels only meaningful?
Date   Thu, 5 Jan 2006 16:31:45 +0100

Dear all,
the System-GMM estimator exploits moment conditions for equation in
differences AND for equation in levels.

However, using xtabond2 
..., gmm(depvar, lag(2 .) equ(BOTH)) ... 
I do not get plausibel results (in almost all cases the Hansen J Test
indicates overidentifying restrictions).

But when using xtabond2 
..., gmm(d.depvar, lag(2 .) equ(LEVEL)) ... 
[WITHOUT an additional gmm(depvar, lag(2 .) equ(diff) command] the results
are economically plausibel and the Hansen J Test is ok.

My understanding of GMM is, that one has to use the equation in differences
to get rid of the individual effects. In addition, one can exploit the
equation in levels and use differences of the depvar as instruments for
those.

But I have not seen GMM estimators, that use ONLY the equation in levels.
However, maybe anybody knows of such cases and is able to give some
references.
I would greatly appreciate any help since I already spent a lot of time
searching for valuable information on this topic.

Niko

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