GMM-SYS methodology

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debagus95
Posts: 8
Joined: Tue Mar 05, 2019 5:26 am

GMM-SYS methodology

Postby debagus95 » Fri Mar 08, 2019 5:01 am

dear,

could u please tell me what GMM-SYS is and how to implement it on eviews?

thank you

debagus95
Posts: 8
Joined: Tue Mar 05, 2019 5:26 am

Re: GMM-SYS methodology

Postby debagus95 » Fri Mar 08, 2019 5:38 am

Dear everyone,

I want to employ GMM estimator for the following model
RISK = RISK(-1) + SIZE + PROFIT + DEBT + CASH + MARGIN + INTEREST

I use Eviews 8. I have an unbalanced panel dataset with small T and large N (T=15, N=360).All variables are stationnary I have tested variables for Granger Casuality and found 3 bidirectionnal relationships : RISK <=> SIZE, RISK <=> INTEREST, RISK <=> DEBT
So after some reading I get that I should use the SYSTEM GMM estimator developped by Blundell and Bond (1998). However, after going throught this forum I understand that such estimator cannot be implemented on Eviews. Is it still the case?
That being said, I still would like to estimate a straight GMM for my personnal knowledge, even though it does not have great properties in small T large N samples.
But I have a few questions about the Dynamic Panel Data Wizard. Indeed despite going through Eveiws helps and examples I still don't get the instruments definitions in step 4 and 5
I first select Method "GMM" and then open the Dynamic Panel Data Wizard
Step 1 : Specify dependent variable. my dependent variable is RISK, and I choose to use 1 lag (I have annual data)
Step 2 : Specifiy regressors. I write the whole right-handiside of my equation : SIZE + PROFIT + DEBT + CASH + MARGIN + INTEREST and include dummy variables for periods because it makes sense in my model
Step3: Select transformation method. I choose differences (Arellano and Bond approach) and I do not transform period dummy variables . What is the rationale behind choosing to transform dummies or not?
Step 4: Specifiy GMM level instruments. @DYN((RISK),-3) is already written. Should I add the regressors SIZE + PROFIT + DEBT + CASH + MARGIN + INTEREST? All of them or only the exogenous ones? I And if yes, should I use 1 lag as well ? (I understood that you should not use endoegnous variables as instruments, since it is the whole point of GMM to get rid of their influence)
And by the way what means @LEV(@SYSPER) in the output?
Step 5. Specify regular instruments. This is where I get mixed up. Is it here that I must add regressors (all of them or exogenous ones?). Can I use their lags here? And as in step 2, how to decide if I want to transform them or not?
Step 6 is okay

So put it simply: what is the difference between instruments that you set in step 4 versus step 5? And then in step 5 how to choose if you want to transform the instrument or not?

PS: I would rather use lagged variables as instruments, I m not really keen to look for an ad-hoc instrument outside my database


Thanks a lot


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