Hello!
I am trying to estimate a conditional beta convergence model with gmm (sys and diff gmm). Below is my estimated equation.
lnYit=gdp in level, yit=lnY(it)-lnY(it-1) thus basically yit is gdp growth.
I found many convergence literatures do not use the yit-1 (the lagged dependent variable), but just the term lnYit-1. But one of the key papers closely related to my work includes the yit-1 as dependent variable to check the persistency of yit. I have questions at this point.
1. If the yit-1 is included, doesn't this mean that we should allow AR(2)? Because, given that yit=lnY(it)-lnY(it-1) and y(it-1)=lnY(it-1) - lnY(it-2) , we obviously see the 2nd order correlation. However the key paper only allows until AR(1). Or is my understanding totally wrong?
2. In other convergence literatures that do not use y(it-1), they check the finite sample bias by the coefficient beta(for lnYit-1) which should lie between OLS and Within Group estimator. But my key paper check this with rho(for yit-1). The reason to check the persistency is to ensure to minimize the presence of weak instruments that can occur in DIFF-GMM, right? Then, does it mean that I also have to check the range of all coefficients of endogenous/predetermined regressors? If I am going to put Xit-1 in gmmstyle of xtabond2 command, meaning that I am using instruments for Xit-1, Should I also compare its range with OLS and Within Group estimator?
Thank you very much! I'd appreciate any comments.
I am trying to estimate a conditional beta convergence model with gmm (sys and diff gmm). Below is my estimated equation.
lnYit=gdp in level, yit=lnY(it)-lnY(it-1) thus basically yit is gdp growth.
I found many convergence literatures do not use the yit-1 (the lagged dependent variable), but just the term lnYit-1. But one of the key papers closely related to my work includes the yit-1 as dependent variable to check the persistency of yit. I have questions at this point.
1. If the yit-1 is included, doesn't this mean that we should allow AR(2)? Because, given that yit=lnY(it)-lnY(it-1) and y(it-1)=lnY(it-1) - lnY(it-2) , we obviously see the 2nd order correlation. However the key paper only allows until AR(1). Or is my understanding totally wrong?
2. In other convergence literatures that do not use y(it-1), they check the finite sample bias by the coefficient beta(for lnYit-1) which should lie between OLS and Within Group estimator. But my key paper check this with rho(for yit-1). The reason to check the persistency is to ensure to minimize the presence of weak instruments that can occur in DIFF-GMM, right? Then, does it mean that I also have to check the range of all coefficients of endogenous/predetermined regressors? If I am going to put Xit-1 in gmmstyle of xtabond2 command, meaning that I am using instruments for Xit-1, Should I also compare its range with OLS and Within Group estimator?
Thank you very much! I'd appreciate any comments.
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