EViews.com

Hi there,

in a panel workfile with 10 cross-sections x 20 periods I need to estimate something like this:
:equation: d(pbal) = b0 + b1 * d(pbal(-1)) + b2 * d(gdp) + b3 * prenorm + b4 * elenorm + error,
where prenorm and elenorm are dummies. Instead of error you can imagine d(error) too. By d(.) I denote first differences.

So far I obtained LS estimates of the equation. However, I saw in some papers they use GMM (Arellano Bond) estimation and I need to use it too. I tried Quick / Estimate Equation / GMM - DPD regression, in the Dynamic Panel Wizard I specified:
Step 1: dependent variable: pbal, lags from one up to: 1
Step 2: other regressors: (blank), include period dummies (blank)
Step 3: transformation: differences
Step 4: @dyn(PBAL,-2) (leave unchanged)
Step 5: other instruments: gdp (differences), prenorm elenorm (no transformation)
Step 6: leave the options unchanged

After I click OK it reports error messages, mostly "the number of instruments is greater than number of observations", after other trials "insufficient number of instruments".

I checked out the EViews GMM example (abond_pan.wf1), it worked just fine. Of course the number of observations there is much higher than mine, 1031 vs just <200 (some are missing). Note that I need to run the regression even for a smaller number of observations.

I attach my workfile. Please can somebody help??? Thanks !!!

Not really clear what your question is here.

Hi QMS Gareth,

sorry for unclarity. I'll try to put it more clearly. In fact, this problem can be turned into several question:

1. Is GMM/ Dynamic Panel Data option in EV suitable to estimate an equation as this one? Does the estimate give different results than if running LS?
:equation: d(pbal) = b0 + b1 * d(pbal(-1)) + b2 * d(gdp) + b3 * prenorm + b4 * elenorm + error,
where d(.) denotes first differences, prenorm and elenorm are dummies and instead of error you can imagine d(error) too.

2. I have a panel data set with 10 cross-sections x 20 periods and estimated the equation by LS in EV, no problem. The workfile is attached together with this post. However, I encountered problems to run an equivalent regression using the GMM / DPD option as in fact, GMM estimates is what I need to obtain. So, I am trying to figure out what is the reason of the error messages?
This is what I did, using the Dynamic Panel Wizard:
Step 1: dependent variable: pbal, lags from one up to: 1
Step 2: other regressors: (blank), include period dummies (blank)
Step 3: transformation: differences
Step 4: @dyn(PBAL,-2) (leave unchanged)
Step 5: other instruments: gdp (differences), prenorm elenorm (no transformation)
Step 6: leave the options unchanged
... and the error messages I obtained: "the number of instruments is greater than number of observations", or after other trials "insufficient number of instruments"

3. The possible reasons I imagine: Have I filled out the DPD dialog wrongly (I mean have I translated the equation wrongly into that dialog)? I am not sure anymore.

4. Or, is the reason perhaps that my sample size is insufficient? I checked out the EViews GMM example (abond_pan.wf1), it worked just fine. But the number of observations there is 1031 vs just <200 of mine (some are missing). I saw in the Wizard that the option is suitable for samples with a large number of cross-sections and short time series. Maybe my sample just doesn't fit into that.

Sorry, I just try to figure out how to run the GMM / DPD regression correctly and I just got confused by this... Thanks a lot for feedback !!!

I can't really answer the first question, I think you'll have to consult your econometric text books for that one.

As for the other questions, I think the error messages are somewhat self explanatory. In the base case it would appear that you have too many instruments - i.e. more instruments than observations. Obviously it is mathematically impossible to estimate such a model, so EViews errors. In your other cases you've gone the other way and have an insufficient number of instruments (you need more instruments than regressors).

Again I can't really tell you what the "correct" model should be. I don't think your problem lies with running DPD in EViews - you appear to have a pretty good understanding of how to fill in the boxes etc...

Thanks QMS Gareth,

for a promt reply on Sunday... You found I have an understanding of how to fill in the Dynamic Panel Wizard dialog. Well, I have to assure you, not at all! I have now tried and indeed produced some output, however, it does not do what I expect it to do. Especially, I see no way to include the PRENORM and ELENORM dummies in levels so that they are recognized as regressors (and are not transformed at the same time).

I am afraid I have to stick to my "simple" LS estimates as the paper urges. If I find out more on this problem later, I will post that info to this forum. Thanks anyway for reply and have a nice Sunday !!! [Of course, working on Sundays is no too good...]