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st: xtabond2 - How deep can the instrument go?

From   San K <>
Subject   st: xtabond2 - How deep can the instrument go?
Date   Wed, 9 May 2012 00:28:33 +1000

Dear all,
My panel consists of 9000 houses X 22 quarterly metered consumption.
Unfortunately I have lot of persistence in the data.

After basing around different estimators I decided to settle with xtabond2.

Here is my simplified semi-log model.
xtabond2 y L4.y price L4.price L4.price L4.price L4.price WeatherVar
SeasonalDummies, noleveleq
 gmmstyle(y, laglimits(16 16) equation(diff))
 ivstyle(PriceVariables, p)
 ivstyle((WeatherVariables, equation(diff))
 ivstyle(SeasonalDummies,  equation(diff))
 twostep ar(5) robust

I started my instrument from Lag5 but none of them passed the Hansen
test or Arellano-Bond test for AR().

My burning question is... is it okay to use the 16th lag as instrument
given I have only 22 time steps?

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