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From |
Søren Møller-Larsson <soren_ml@hotmail.com> |

To |
<statalist@hsphsun2.harvard.edu> |

Subject |
st: predetermined variables with xtabond2 |

Date |
Sat, 26 May 2012 10:49:00 +0200 |

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/

**Follow-Ups**:**Re: st: predetermined variables with xtabond2***From:*Suryadipta Roy <sroy2138@gmail.com>

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