GMM: constant as a part of the instrument list

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GMM: constant as a part of the instrument list

Postby tvonbrasch » Sun May 16, 2021 6:30 am


when using the GMM estimator, one may specify that a constant is not to be included in the set of instruments using the option: nocinst, see:

However, in a panel workfile, the constant is automatically added when estimating using panel GMM.

Why is that? is there a way to not include a constant term? Or does it not matter?

When trying in a time-series setting, where I can drop the constant term using the option: nocinst, the instrument rank is the number of non-constant variables, i.e. not taking into account the constant term. The instrument rank do not change when I include the constant term. In a panel setting, however, where the constant term is automatically added, the instrument rank is the number of variables plus 1 (i.e. the constant term). is there a reason for this?

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