How to do xtabond2: An introduction to difference and system GMM in Stata
AbstractThe difference and system generalized method-of-moments estimators, developed by Holtz-Eakin, Newey, and Rosen (1988, Econometrica 56: 1371-1395); Arellano and Bond (1991, Review of Economic Studies 58: 277-297); Arellano and Bover (1995, Journal of Econometrics 68: 29-51); and Blundell and Bond (1998, Journal of Econometrics 87: 115-143), are increasingly popular. Both are general estimators designed for situations with "small T , large N" panels, meaning few time periods and many individuals; independent variables that are not strictly exogenous, meaning they are correlated with past and possibly current realizations of the error; fixed effects; and heteroskedasticity and autocorrelation within individuals. This pedagogic article first introduces linear generalized method of moments. Then it describes how limited time span and potential for fixed eﬀects and endogenous regressors drive the design of the estimators of interest, offering Stata-based examples along the way. Next it describes how to apply these estimators with xtabond2. It also explains how to perform the Arellano-Bond test for autocorrelation in a panel after other Stata commands, using abar. The article concludes with some tips for proper use. Copyright 2009 by StataCorp LP.
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Bibliographic InfoArticle provided by StataCorp LP in its journal Stata Journal.
Volume (Year): 9 (2009)
Issue (Month): 1 (March)
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Web page: http://www.stata-journal.com/
Other versions of this item:
- David Roodman, 2006. "How to Do xtabond2: An Introduction to "Difference" and "System" GMM in Stata," Working Papers 103, Center for Global Development.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
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