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# Re: st: predetermined variables with xtabond2

 From Suryadipta Roy To statalist@hsphsun2.harvard.edu Subject Re: st: predetermined variables with xtabond2 Date Sun, 27 May 2012 10:10:30 -0400

```Soren,
Did you read the following paper (The Stata Journal Volume 9 Number 1:
pp. 86-136) from the author of this code:
http://www.stata-journal.com/article.html?article=st0159

I believe that you wil get the answers to your queries in the paper.

Best wishes,

On Sat, May 26, 2012 at 4:49 AM, Søren Møller-Larsson
<soren_ml@hotmail.com> wrote:
> 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
>
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