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Re: st: Invalid Lags message - gmm, a system of two simultaneous equations

From   "Brian P. Poi" <>
Subject   Re: st: Invalid Lags message - gmm, a system of two simultaneous equations
Date   Mon, 15 Feb 2010 08:22:16 -0600 (CST)

On Mon, 15 Feb 2010, Ari Dothan wrote:

Dear Statalist participants,

The two equations are:

(1) C_t = B1*P_t-1 + B2*C_t-1 + B3*A_t-1 +  B4*CM_t-1 + alpha  +  u_it
(2) P_t = B5*C_t-1 + B6*P_t-1 + B7*PM_t-1 + alpha1 +  v_it

The first stage equation alone in Stata code:
gmm (D.C_t - {rho}*LD.C_t -{xb: LD.P_t LD.A_t  LD.CM_t}), xtinstruments(C_t,
lags (2/4)) instruments (LD.P_t LD.A_t  LD.CM_t , noconstant)
deriv(/rho=-1*LD.w10_or)  deriv (/xb=-1) winitial (xt D) onestep

Both stages are combined in Stata code:
gmm (eq:D.C_t - {rho1}*LD.C_t -{xb: LD.P_t LD.A_t  LD.CM_t}) (eq2:D.P_t -
{rho1}* LD.P_t - {xc: LD.C_t  LD.PM_t-1}),
xtinstruments(eq1:C_t,lags(2/4)) (eq2:P_t, lags(2/4)) instruments
(eq1:LD.(P_t - A_t) LD.CM_t) instruments(eq2:LD.C_t LD.CM_t) deriv(eq1:/rho
= - 1*LD.C_t) (eq2:/rho1 = - 1*LD.P_t) deriv(eq1:/xb = -1) (eq2:/xc = -1)
winitial(xt D) wmatrix(robust) onestep

I am aware of the fact that I am trying to run 2 level equations and two
difference equations, and hope that I understand the procedure as explained
in the Stata manual on gmm.

The problem is that I get an "invalid lags" message.

With dynamic panel models, -gmm- allows you to specify at most two equations. If you specify two equations, then one equation should be in differenced form and the other in levels form. In that case the winitial() option should either be winitial(xt DL) or winitial(xt LD) depending on whether you specify the differenced or level equation first.

  -- Brian Poi
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