Estimation GMM
Posted: Tue Sep 29, 2015 4:29 am
Hi,
Now, am working on the cyclicity of the fiscal policy, but knowing that fiscal variables and growth (as GDP) are auto-correlated, the most of studies of this cas suggest the utilisation of the GMM to overpass this problem while the OLS are useless here (and it is the only method i had used since now). Others methods with instrumental variables are also suggested but the GMM seems the most used.
My equation to estimate is: (wich i put in the equation specification)
S = C + a Y + b Y(-1) + b S(-1) + d X(1.....n)
With S a fiscal variable, Y as GDP and X some other variables (économical and political variables).
Well, after that i must introduce the instrumental variables, but sincerly i don't know what variables i must put here to eliminate the endogeinity of the variables or how can i choose them, even if i read so many empirical studies in this case i can't understant how they choose them and the manuals of econometrics focus much in equations than in practice.
Hope i can found a response here and count on your help so please if someone can give me a hand.....
And sorry for the long text and my weak english.
Now, am working on the cyclicity of the fiscal policy, but knowing that fiscal variables and growth (as GDP) are auto-correlated, the most of studies of this cas suggest the utilisation of the GMM to overpass this problem while the OLS are useless here (and it is the only method i had used since now). Others methods with instrumental variables are also suggested but the GMM seems the most used.
My equation to estimate is: (wich i put in the equation specification)
S = C + a Y + b Y(-1) + b S(-1) + d X(1.....n)
With S a fiscal variable, Y as GDP and X some other variables (économical and political variables).
Well, after that i must introduce the instrumental variables, but sincerly i don't know what variables i must put here to eliminate the endogeinity of the variables or how can i choose them, even if i read so many empirical studies in this case i can't understant how they choose them and the manuals of econometrics focus much in equations than in practice.
Hope i can found a response here and count on your help so please if someone can give me a hand.....
And sorry for the long text and my weak english.