Generalized method of moments estimation of linear dynamic panel-data models

Sebastian Kripfganz

2020 Stata Conference from Stata Users Group

Abstract: In dynamic models with unobserved group-specific effects, the lagged dependent variable is an endogenous regressor by construction. The conventional fixed-effects estimator is biased and inconsistent under fixed-T asymptotics. To deal with this problem, "difference GMM" and "system GMM" estimators in the spirit of Arellano and Bond (1991), Arellano and Bover (1995), and Blundell and Bond (1998) are predominantly applied in practice. The Stata community widely associates these methods with the xtabond2 command provided by Roodman (2009). I present the new xtdpdgmm command, which addresses some shortcomings of xtabond2 and adds further flexibility to the specification of the estimators. In particular, it allows one to incorporate the Ahn and Schmidt (1995) nonlinear moment conditions that can improve the efficiency and robustness of the estimation. Besides the familiar one-step and two-step estimators, xtdpdgmm also provides the Hansen, Heaton, and Yaron (1996) iterated GMM estimator.

Date: 2020-08-20
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Working Paper: Generalized method of moments estimation of linear dynamic panel-data models (2019)
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