GMM-stationarity of the series and R squared

[Tinoosh]

I need to apply GMM on a Taylor type model where short-term interest rate is on the left side of the model and GDP, inflation rate and exchange rate are on the right side the model. I need to know whether my series should be stationary? and so my instruments in application of GMM should be lagged of the stationary series?

Also I am getting negative R squared! what does this mean?

Cheers
Tinoosh