An LM test for the mean stationarity assumption in dynamic panel-data models

I present the new Stata command xttestms for computation of the LM test for verifying the assumptions underlying the system GMM estimation in the context of dynamic panel-data models. The test has been proposed by Magazzini and Calzolari (2020), who show its better performance with respect to testing procedures customarily employed in empirical research (that is, the Sargan/Hansen test checking the whole set of moment conditions of the system GMM approach and the difference-in-Sargan/Hansen, which compares the value of the minimized criterion function of the system and difference GMM approaches). The command can be run after system GMM estimation by using either the Stata command xtdppsys or the command xtabond2 by Roodman (2009) to verify that the additional moment conditions that characterize the system GMM estimator are satisfied; that is, it verifies the validity of the mean stationarity assumption for the initial conditions. A set of Monte Carlo experiments will be performed to further assess the properties of the testing procedure, and two examples will be considered to show how the proposed command can be applied in empirical research.