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From |
Kit Baum <[email protected]> |

To |
[email protected] |

Subject |
st: Re: xtabond2 - variables in level |

Date |
Wed, 9 Apr 2008 09:19:13 -0400 |

This reflects a confusion in the notion of a model in first differences.

If we have y = b0 + b1 X + e

Then D.y = b1 D.X + D.e

and b1 is still the estimate of dy/dX. If you are using any form of Arellano-Bond/Blundell-Bond estimation, you are working with the difference transformation (or the orthogonal difference transformation), so that the model is fit to the differences of the variables specified. Thus

y_it = b0 + b1 y_i,t-1 + b2 k)_t + b3 l_t + b4 rents_t-1 properly becomes

D.y_it = b1 D.y_i,t-1 + b2 D.k + b3 D.l + b4 D.rents_t-1

and b4 is still the estimate of dy/dL.rents. The only way in which it would make sense to include L.rents in the differenced equation is if it were a flow, and the original model contained a stock variable. But I do not imagine that rents paid in a particular period can be considered as a stock variable.

Kit Baum, Boston College Economics and DIW Berlin

http://ideas.repec.org/e/pba1.html

An Introduction to Modern Econometrics Using Stata:

http://www.stata-press.com/books/imeus.html

On Apr 9, 2008, at 02:33 , Tomas wrote:

However, I want to find out whether it is possible to estimate that function using xtabond2. In Stata, I would write xi: xtabond2 y yL1 k l rentsL1 i.year, gmm(yL1) iv(i.year k l rentsL1) noleveleq small where all the variable are in logs, and *L1 means one period lag. If I am not wrong, if I do so the coefficient I get for rentsL1 will be on its first difference (i.e. rentsL1 - rentsL2). Is there a way to have the coefficient for level of rents, keeping all the other variables in first difference?

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