Understanding Generalised Method of Moments

This video tries to simplify the understanding of generalised method of moments (GMM) technique in such a manner that beginners can comprehend. The video series will contain eight other tutorials: (1) How to Estimate One-step Difference GMM; (2) How to Estimate Two-step Difference GMM; (3) How to Estimate One-step System GMM; (4) How to Estimate Two-step System GMM; (5) How to Estimate Decide between Difference or System GMM; (6) How to Interpret GMM Output; (7) How to Generate Long-run GMM Coefficients; and (8) How to Plot Year Dummies in Difference and System GMM. So, what is GMM? A generic method for estimating parameters in statistical models; Uses moment conditions that are functions of the model parameters and the data, such that their expectation is zero at the parameters' true values; it is a dynamic panel estimator. And what is a panel data? It is also called longitudinal data; a multi-dimensional data involving measurements over time; contains observations of multiple phenomena obtained over multiple time periods for the same firms, individuals, countries etc. Watch my video on “Tips to Building Panel Data” for more information.
Why use GMM? It controls for: endogeneity of the lagged dependent variable in a dynamic panel model - when there is correlation between the explanatory variable and the error term in a model; omitted variables bias; unobserved panel heterogeneity; and measurement errors. How do you decide between performing the difference or system GMM? Rule-of-thumb given by Bond (2001): (1) The dynamic model should be initially estimated by pooled OLS and the LSDV approach (i.e., using the ‘within’ or fixed effects approach); (2) The pooled OLS estimate for ɸ should be considered an upper-bound estimate, while the corresponding fixed effects estimate should be considered a lower-bound estimate; (3) If the difference GMM estimate obtained is close to or below the fixed effects estimate, this suggests that the former estimate is downward biased because of weak instrumentation and a system GMM estimator should be preferred instead. It is also advisable to use system GMM if variable exhibits a random walk (persistent).
Two GMM diagnostic tests. The first is the test for instruments validity performed using Hansen (1982) J test and Sargan (1985) test of over-identifying restrictions: tests the null hypotheses of overall validity of the instruments used. Failure to reject these null hypotheses give support to the choice of the instruments. The second test is that for autocorrelation/serial correlation of the error term. It tests the null hypothesis that the differenced error term is first and second order serially correlated. Failure to reject the null hypothesis of no second-order serial correlation implies that the original error term is serially uncorrelated and the moment conditions are correctly specified. There are some challenges to estimating GMM. They are complicated and so can easily generate invalid estimates; GMM codes can be easily manipulated to yield different results; Does not account for cross-sectional dependence (CSD); Does not account for structural breaks; Not advisable for panel with very long time series (use PMG, MG and DFE estimators); Susceptible to variables listed in the IV set; Too many instruments weaken the Sargan/Hansen test and yield implausible p-values; Results are biased if instruments outnumber individual units in the panel; The problem of how many is “too many” instruments. Monte Carlo simulation evidence suggests that cutting the number of over-identifying instruments in half can reduce the bias by 40%. References used for this video tutorial are from: Arellano & Bond (1991): Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment. Review of Economic Studies Limited. 58(1) 277-297; Arellano & Bover (1995): Another Look at the Instrumental Variable Estimation of Error-Components Models. Journal of Econometrics 68 (1): 29 - 51; Blundell & Bond (1998): Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. Journal of Econometrics 87: 115-144; Roodman D. (2009): How To Do xtabond2: An Introduction to “Difference” and “System” GMM in Stata; and Roodman D. (2014): Xtabond2: Stata Module to Extend xtabond Dynamic Panel Data Estimator. Statistical Software Components.
Follow up with dofiles, soft-notes and updates from CrunchEconometrix:
Website: cruncheconometr...
Blog: cruncheconomet...
Forum: cruncheconometr...
Facebook: / cruncheconometrix
KZbin Custom URL: / cruncheconometrix
Twitter: / crunchmetrix
Reddit: / crunchmetrix
Stata Videos Playlist: • (Stata13):Estimate and...
EViews Videos Playlist: • (EViews10):Interpret V...

[@CrunchEconometrix]

Hi beloved guest/subscriber, you have discovered my amazing KZbin Channel tailored specifically for you and other beginners and intermediate users. Please do not keep me to yourself (lol). Kindly share my videos and links with your students, colleagues and academic community so that they too can SUBSCRIBE and learn with ease….and for the global community to be aware that applied econometrics can be simplified. My teaching approach is very practical. I adopt a do-as-I-do style. Many thanks to those who have supported me by telling others. Once again, CrunchEconometrix loves to teach, support my Channel with your subscription, your likes, feedbacks and sharing my videos with your cohorts. Follow me on Facebook, Twitter and Reddit. Love you all, greatly!!! 

[@djamelzeddoun9419]

dear Bosede Ngozi Adeleye if we have the p-value of J statistique higher than 5% how do we interprete it ?

[@CrunchEconometrix]

>5% = normality test passed.

[@rohtashbhall2671]

Null hypothesis: data is normal If p-value

[@CrunchEconometrix]

Correct ✔️

[@ritikakhurana16]

This is most summarized presentation on GMM. After watching this video, it was much easier to follow Roodman (2009). Thank you!

[@CrunchEconometrix]

Thanks Ritika, I am also glad that you find the content very helpful. May I know from where (location) you are reaching me?

[@farhanfarzam4278]

Hi dear ma'am, thank you for your great lessons, i would like to know: 1. How to check the endogeneity of variables? 2. Could we take the lag of control variable in gmmstyle instruments set if it is endogenous 3. which test is required before applying GMM? strongly looking forward to have your response on it

[@CrunchEconometrix]

Hi Farhan, I have created 9 GMM videos for simplicity of the technique. You may want to refer to Roodman (2009, 2014) for detailed understanding. Thanks.

[@Meera4980]

Very Helpful❤ Please help to make me out from a great dilemma.... Is Engoneous variable can be instrumental variable in GMM analysis??

[@CrunchEconometrix]

Pancha, endo variable CANNOT be used as IV.

[@mauriellecunanan1916]

You have been very helpful for my thesis! I appreciate all of the information you have shared :). I also would like to ask how do we determine the right instruments? Do we include all of our control variables as instruments? Or do we need to test for endogeneity? If so how do we do this exactly?

[@CrunchEconometrix]

I will advise that you read Roodman (2009, 2014) for more insights into the GMM model. See references listed at the end of the video.

[@fathiahamzaoui6172]

Hi Dr. Please I need your help. I estimate a panel dynamic panel with system GMM (T=10 and N=30), variables are I(1). I use variables in level in estimation (xtabond2), is this correct?

[@CrunchEconometrix]

Hi Fathia, I showed the practicals in the rest GMM videos. Kindly watch.

[@takundamugwira7747]

How are you Dr. Thank you very much for the videos. Please, I have a question. I would like to estimate a dynamic model by applying the GMM on eviews but the issue is on the part of presenting results, there is an error messsage saying number of instruments are greater than number of observations. So Dr, should I continue using GMM or there is something I should do?

[@CrunchEconometrix]

Hi Takunda, due to the command-driven interface, I find Stata more robust for panel data analysis. I will advise you to post this to any EViews platform for constructive feedback. Thanks

[@viaryaudreane9032]

hi, i have difficulty in using xtabond2 in stata. do you understand how to combine levels or lag, difference, and orthogonal? very happy if you can help me :)

[@CrunchEconometrix]

Viary, I have 9 detailed practical videos on GMM estimation. Find the time to watch them as they address all your queries. Thanks.

[@mauriellecunanan1916]

Hi thank you for this video. Question for external instruments, if i dont have external ones, can I omit it to my code?

[@CrunchEconometrix]

You need to put instruments in the iv( ). Otherwise, your code won't execute.

[@abdullateefbadmus9810]

Good day ma, after I had gotten the do-files, I am still experiencing difficulties in running the GMM analysis on my stata app. Kindly, help out.

[@CrunchEconometrix]

Please what are the challenges?

[@khalilelbachiri9977]

Hello teacher, First of all, I would like to thank you for your videos which help us a lot. Please I have a question for you: I would like to estimate a dynamic model by applying the GMM for a number of individuals which is equal to 12 and T=5, is this feasible? If not, is there another method that I can apply for this case? Thanks in advance.

[@CrunchEconometrix]

Hi Khalil, I have responded to you on this on a different thread. Use GMM technique for N>T panel data structure.

[@khalilelbachiri9977]

@@CrunchEconometrix Hello Professor, thank you very much for your reply.

[@fotiojulien6081]

Hello Pr please how Can solve the Problem of number of instruments is greater than observations ?

[@CrunchEconometrix]

Hi Fotio, kindly watch the full GMM series (9 videos). I addressed your query in between. Thanks

[@nch6412]

I love you, you are saving my grade in the panel data course in my masters! Sending you love from Germany

[@CrunchEconometrix]

Hahahaha, good to hear :). Wishing you the best in your exams. Much love from Nigeria!

[@sobiyahanif3295]

Hi Ma'am . Can you plz guide me about iterated gmm estimation? Urgently needed.

[@CrunchEconometrix]

Hi Sobiya, I don't quite get your query.

[@vaishnavibalaji6811]

Can u please share a KZbin video on how to how to do moderation or mediation in System GMM method

[@CrunchEconometrix]

You may want to check out other online resources. I currently don't have such video at the moment. Thanks

[@farhanfarzam4278]

Thank you dear maam for your wonderful lessons, could you pls shed some light on how to take the log of negative value. in my data set there is some negative value. looking forward to have your insights. thank you.

[@CrunchEconometrix]

Hi Farhan, I know that some researchers do but I don't take log of negative values to prevent losing observations. You may want to check out other online resources on how to get around this. Thanks.

[@AlfredtheAnalyst]

Can I use the GMM for an Annual Time Series data that has been converted to Quarterly data ?

[@CrunchEconometrix]

Hi Alfred, yes you can. But this video is based on GMM using a panel data NOT time series.

[@ishfaqnazirkhanday4001]

My coefficient for the lagged dependent regressor (fi) in pooled OLS is 1.02 , while in fixed effects it is .97 and in one step difference GMM it is .64 .Should I move to system GMM or stay at Difference GMM. Please help me out.

[@CrunchEconometrix]

Hi Ishfaqnazir, my video on deciding which step to take is very detailed and explicit. You may need to watch again. Thanks.

[@ishfaqnazirkhanday4001]

Thanks a ton.

[@rohtashbhall2671]

Please upload video on panel data in Eview and gretl software Regards

[@CrunchEconometrix]

Hi Rohtash, thanks for your suggestions. Deeply appreciated 🙏

[@CrunchEconometrix]

Eric Li, this is TOTALLY WRONG! You are ILLEGALLY hosting my contents as yours. YOU HAVE BEEN REPORTED TO KZbin!!!

[@kofiboateng4835]

Hello, please after estimating using system gmm, I have an AR(1) of 0.089… please is this okay?

[@CrunchEconometrix]

Hi Kofi, 0.089 is good. It means that at the 5% significant level, you can't reject the null hypothesis of no second order serial correlation.

[@kofiboateng4835]

@@CrunchEconometrix Thank you

[@ugwuegbucharles8631]

Hello dear. What is the best model to be used when the number of observations are small?

[@CrunchEconometrix]

Charles, I have no direct response to this. Minimum sample/observations size for regression analysis is 30.

[@zuzekandovela3872]

Im suffering on collinearity please help

[@CrunchEconometrix]

This is not an issue per se. Watch my videos on MULTICOLLINEARITY. They are detailed to guide you on how to resolve the problem.

[@ብሬአለክስ]

Dear our instructor I would like to say thank you alot...after seeing your vedio repeatedly with out any third person support I have accomplished my MSc thesis analysis and presented in a good way. On the defense the examiners have commented me to add endogenity test on the SVAR test, therefore this, is to request your lovely support how I can conduct the test and is important to conduct endogenity test in SVAR? Your immediate response is highly appreciated

[@CrunchEconometrix]

Hi there, thanks for your encouraging feedback. Deeply appreciated! 🥰 Unfortunately, I'm not versed on SVAR that's why I have no videos on the technique. I'd advise you to check out other online resources for more information.

[@ብሬአለክስ]

Okay, but you have alot of vedios on Vector autoregressive analysis among them I have worked on structural vector autoregressive...so am sure you will have... I want only if u show me how to conduct exogenity and endogenity test for time series data using eviews

[@CrunchEconometrix]

I have no video on that. You may want to check out other online resources.

[@newcreationeconomics2981]

can you apply GMM for time series data analysis?

[@CrunchEconometrix]

There's GMM for time series data but the mechanics are different.

[@kofiboateng4835]

Please what should be the range for the coefficient of the lagged dependent variable in the dynamic model given that the coefficient is significant at 5%?

[@CrunchEconometrix]

Kofi, I'm not aware of any range of values for the coefficient of the lagged depvar.

[@kofiboateng4835]

@@CrunchEconometrix Thank you very much

[@khalik3670]

Hello teacher, First of all, I would like to thank you for your videos which help us a lot. Please I have a question for you: I would like to estimate a dynamic model by applying the GMM for a number of individuals which is equal to 16 and T=10, is this feasible? If not, is there another method that I can apply for this case? Thanks in advance.

[@CrunchEconometrix]

Hi Khalik, GMM is in order. Please go ahead with your analysis.

[@khalik3670]

Thank you teacher

[@fabricekambou29]

Hello madam I have a question. Can we use the generalized method of moments on non panel data?

[@CrunchEconometrix]

Hi Fabrice, there's GMM for time series data. You may want to check out other online resources. Thanks

[@fabricekambou29]

@@CrunchEconometrix Thanks

[@kabinehkpukumu6182]

Oh Lord! Thanks for providing us with a strong and willing academician like Dr. Ngoze. This videos and the rest of your videos are gems. We are learning so much from you that you can imagine. Your videos are always well detailed. You make the technical literature on Econometrics very comprehensible to us the newbies in Econometrics. We are very grateful to you madam, and someday I look forward to meeting with you and thank you in person. I'm a West African myself trying to build a career in Econometrics. thanks a lot.

[@CrunchEconometrix]

Hi Kabineh, thanks for the positive feedback. Deeply appreciated! I'm glad to hear that my videos are helpful to a number of students and researchers. I'll keep doing my best to contribute my little to the global academic community. Please may I know from where (location) you are reaching me?

[@sadiaashraf9812]

Respected sir, i have some queries related to Dummy variables. How we can calculate dummy variables in GMM. please helps me. which one command we used for dummy variables and how we can further interpret them.

[@CrunchEconometrix]

Hi Sadia, I have several videos on DUMMY VARIABLES in panel data both on KZbin Channel and Teachable platforms. You may want to watch them and follow the guidelines. Thanks

[@sadiaashraf9812]

@@CrunchEconometrix hi Sid , please mention the name of websites or KZbin channel on that you have done your work related to dummy variable calculate on Stata by using GMM method .

[@sadiaashraf9812]

@@CrunchEconometrix Can you guide about that problem , when I put commnads of GMM and run the data , error show , bad that one is unknown egen function sum... Do you know what this is and how we can solve this issue .

[@CrunchEconometrix]

Hi Sadia, you can use the xtabond2 syntax indicated in the video.

[@vaishnavibalaji6811]

May i please know whether moderation or mediation can be done in GMM method of regression? please solve my doubt

[@CrunchEconometrix]

Yes, it can.

[@vaishnavibalaji6811]

@@CrunchEconometrix thank you Sir. Can u please share a KZbin video on how to how to do moderation or mediation in System GMM method

[@CrunchEconometrix]

I don't have a video at the moment. You may want to check out other online resources. Thanks

[@ShrutiNirmalSaraf]

Why use GMM? It controls for endogeneity of the lagged dependent variable in a dynamic panel model - when there is a correlation between the explanatory variable and the error term in a model; omitted variables bias; unobserved panel heterogeneity; and measurement errors. How do you decide between performing the difference or system GMM? Rule-of-thumb given by Bond (2001): (1) The dynamic model should be initially estimated by pooled OLS and the LSDV approach (i.e., using the ‘within’ or fixed effects approach); (2) The pooled OLS estimate for ɸ should be considered an upper-bound estimate, while the corresponding fixed effects estimate should be considered a lower-bound estimate; (3) If the difference GMM estimate obtained is close to or below the fixed effects estimate, this suggests that the former estimate is downward biased because of weak instrumentation and a system GMM estimator should be preferred instead. It is also advisable to use system GMM if the variable exhibits a random walk (persistent). Can you please tell me from which videos should I watch this?? Please

[@CrunchEconometrix]

I suggest that you watch all my GMM videos for in-depth knowledge. Thanks 😊

[@sanjazivkovic3027]

This is incredible. Thank you very much for sharing your knowledge with us. So precious 😊

[@CrunchEconometrix]

Compliment is humbly taken, Sanja! May I know from where (location) you are reaching me?

[@muhammadyasirsarhadi786]

Thanks 👍

[@maisau1132]

Hi Dr Crunch. GMM model does not account for cross-sectional dependence panel data. So what model can I use for cross-sectional dependence endogenous panel data? Thank you.

[@CrunchEconometrix]

Hi Mai, there are several of them: common correlated effects (CCE), CCE-MG, Augmented MG, dynamic CCE. Search online for studies that have used them. Regards.

[@maisau1132]

@@CrunchEconometrix Thank you Dr. One more question is what is the best model for my data which is small panel (T=20, N=21~25).

[@CrunchEconometrix]

Hi Mai, both N and T are almost the same. So, deploy techniques related to those suggested earlier since you have to test for stationarity due to T > 15. Support your analysis with GMM.

[@maisau1132]

@@CrunchEconometrix Dear Dr. Do you mean the GMM model (xtabond2 command) is appropriate model? I would like to let you know more about my panel data. My data is small panel (T=20, N=21~25) macroeconomic indicators data. The data has heterokedasticity, endogeneity, cross sectional dependence, multicollinearity and non-stationarity (I(0) and I(1)) as well. Sory about missing information. Does GMM model deal with cross sectional dependence and I(0)-I(1) data? Thank you for your help.

[@education9039]

Thanks for the helpful videos! Subscription all the way from Seoul South Korea :)

[@CrunchEconometrix]

Hi Education, thanks for the positive feedback and remarks on my KZbin videos....I'm honored by your subscription too. Please share my videos with your friends and academic community in Seoul! 😀

[@aniksaha9925]

In a study, if i conduct both fixed effect model regression (one independent variable turned out significant) and gmm regression (two significant variables turned out significant -including the FE model's variable). What should i include in the paper for panel data analysis? Or should i include both

[@CrunchEconometrix]

Anik, using FE and GMM may depend on your empirical approach and if that addresses your research objectives. So, I will leave you to decide. Thanks

[@dr.faisal3100]

Hello dear thank you for your excellent contribution. In calculating xtabond2 I am facing the error by not getting the AR(2) value...how ever the value of AR(1) is quite significant with no error of serial correlation. I am using quarterly data and my t>n. So how can I get the value of AR(1) and AR(2) at the same time. If you have any relevant videos, please post the link so that I can see it. Thank You..

[@CrunchEconometrix]

Hi Dr. Faisal, GMM is only applicable to N>T panel structure.

[@stefanyangeline5330]

Hello Professor, thank you very much for you video. However, sorry about this basic question I'm about to ask and my bad English. Actually I still can't quite understand about number of instruments. Can you help me describe what is the exact meaning of number of instruments in GMM? thank you

[@CrunchEconometrix]

Hi Stefany, thanks for the positive feedback. On "instruments", I will refer you to read some of the literature indicated at the end of the video for better understanding. Thanks.

[@cristinaixe]

Hi! greetings from Mexico, Im an economist student. Thanks a lot!! the information is to easy to understand, your video helps me to develop my investigation for econometrics class

[@CrunchEconometrix]

Thanks for the encouraging feedback, Cristina. Deeply appreciated! Please may I know from where (location) you are reaching me?

[@onwejoshuachukwuma4395]

Ma Thanks for the Video on GMM Am working on a paper on GMM likewise. The one step Gmm are well defined. But I noticed that the diagnostic of sargen and Ar bond did not meet the requirements based on decision rule . Like wise in two way system Gmm. What do you suggest could be done.

[@CrunchEconometrix]

Hi Jo, have you watched any of my GMM videos because i explained what to do. Also, I explained in the foundational video that Hansen J is more robust than Sargen stat. I advise you watch these videos for clarity. thanks.

[@hosseinyounesi2269]

Hi Thank you for your incredible channel. What about random effect models? My panel data is random effect and one of my explanatory variables is not station at level and Wooldridge test showed my panel data has autocorrelation problem. Shoud i use dynamic panel model? My panel data contains 7 cross-sections and daily data for more than 8 years (about 23000 cells) Thank yo

[@CrunchEconometrix]

Hi Hossein, kindly watch my video on "Fixed and Random Effects Models". Thanks.

[@sarahahmedchawsheen5455]

What is the best model for a small sample panel with T>N , the heterogenous slops and cross section dependent. thanks.

[@CrunchEconometrix]

Have at least 30 years observations and deploy any panel ARDL technique.

[@sarahahmedchawsheen5455]

@@CrunchEconometrix i have N=7 and T=21 and cant increase it what should i do in your opinion?

[@CrunchEconometrix]

Sarah, transform the yearly data into quarterly that gives you 84 quarterly observations.

[@sarahahmedchawsheen5455]

@@CrunchEconometrix I appreciate your suggestions, and I like to thank you for your amazing tutorial videos' in econometrics.

[@naeemkhan4246]

Hello, I am Naeem Khan, doing PhD from Pakistan. Can you share the link of videos with mediation analysis by using GMM. Regards

[@CrunchEconometrix]

Hi Naeem, I haven't attempted mediation analysis in GMM. You may need to check other online resources. Thanks.

[@msadiqul]

I have long panel (15 years 190 countries). For system GMM, do I need to check stationarity of variables?

[@CrunchEconometrix]

Some reviewers will insist you should. I avoid that by keeping T < 15 years.

[@meiyou9530]

dear teacher Is there a way to estimate time series data using stata and gmm method? I tried again and again to do this using Stata, but I failed at all times because Stata told me that I had to estimate it as a data panel.

[@CrunchEconometrix]

Yes, Meiyou. There's time series GMM. You can check out other online resources.

[@meiyou9530]

@@CrunchEconometrix I searched the web for about 5 days to find a help video but unfortunately I could not find it. Can you help me plz?

[@CrunchEconometrix]

Meiyou, I have videos on PVAR-GMM on my Teachable paid platform. Here's the link cruncheconometrix.teachable.com

[@muhammadyasirsarhadi786]

Thank you so much for sharing your thoughts and knowledge with others... It's really appreciatable

[@CrunchEconometrix]

My pleasure, Muhd! Thanks for the encouraging feedback, deeply appreciated!

[@karanrai618]

Ma'am Videos are really helpful. can you make videos on MGARCH

[@CrunchEconometrix]

Thanks for the encouraging feedback, Karan! I'll do the video once I understand the technique.

[@sisaynewubante3110]

i have subscribed and looked your econometrics videos really they are constructive but for the time being i ask two questions on pane data analysis 1.how can i decide between static and dynamic panel?here I have watched your video which deals on selection on sgmm and dgmm but first how can i decide wether my model is dynamic or static panel 2.which tests are mandatory in panel data analysis? may God bells you from Ethiopia

[@CrunchEconometrix]

Hi Sisayne, I am humbled by your kind remarks and your subscription...deeply appreciated. Engaging a static or dynamic analysis is at the discretion of the researcher. You may need to read related studies for more constructive reasons. My panel data videos contain post-estimation tests, kindly watch them. Thanks.

[@mbororodancebaralla8304]

Please i need the do file

[@CrunchEconometrix]

Hi Mbororo, due to abuse and unethical conduct Stata dofiles used in my videos are no longer free but available on my website upon payment. Here's the link cruncheconometrix.com

[@ammarqureshi6192]

Can you please explain how number of instruments are calculated in system GMM. I tried to search this throughout your lectures and from other sources as well but couldn't find it anywhere.

[@CrunchEconometrix]

Ammar, read Roodman (2009, 2014).

[@shaktikumar9565]

Must follow Roodman(2009), she explained the similar way, thanks for explaining this paper, can You explain on panel var and structural var using Stata or R. THANKS IN ADVANCE

[@CrunchEconometrix]

Hi Shakti, I'll do my best to make those videos once I fully understand the techniques. Please may I know from where (location) you are reaching me?

[@ishtiyaqahmad146]

can you please also elobrate the upper and lower bounds of hansen j statistic, and sargan test, individually and the role of both AR(1) and AR(2) in interpreting the results

[@CrunchEconometrix]

Hi Ishtiya, I indicated references at the end of my videos to solidify understanding and answers to questions. Kindly go through any of them, thanks.

[@matthewomotoso9452]

Thank you for a well structured and easily understandable presentation. I will like to ask, how long would a panel be to make it not appropriate to apply GMM?

[@CrunchEconometrix]

Hi Matthew, thanks for the kind words on this presentation. Humbly appreciated. On your query, if N

[@Angie-wc1bu]

Thank you for this video. I'd like to ask is the SGMM ideal for estimating the dynamic impact when N is small (the number of cross sections is 16) and T is large (the time period is 40 years). If it's not - which method would be considered ideal? I'm estimating the dynamic impact of consolidation programs on income inequality. Thank you so very much again.

[@CrunchEconometrix]

Hi Angie, panel ARDL techniques are applicable. I have videos on them. Kindly search within my Channel. Thanks.

[@junaidhaider4395]

can we use GMM for panel data even its not dynamic panel model.i mean without lagged of dependent variable as independent variable?

[@CrunchEconometrix]

No, Junaid.

[@naeemkhan4246]

Hello, if the probability of J stat is insignificant, what it means ? how to interpret it in my research thesis?

[@CrunchEconometrix]

Hi Naeem, that's better. I gave the interpretation in the rest of the GMM videos. Kindly watch them. Thanks.

[@naeemkhan4246]

@@CrunchEconometrix can u share that video, I m unable to locate

[@CrunchEconometrix]

Naeem, I explained the essence of Hansen J and gave the interpretation in ALL the practical videos. You may need to watch them for adaptation. Thanks.

[@naeemkhan4246]

@@CrunchEconometrix please share the link

[@zarajuarez5465]

Professor, I wonder if you could help me with a question. Is it possible to implement GMM even if my model includes interaction terms? The interaction terms are my main independent variable with the year dummies. I want to check the effect of this variable for each year. However, I suspect that I should also include the lag of the dependent variable.

[@CrunchEconometrix]

Hi Zara, GMM accommodates interaction terms with the inclusion of lagged dependent variables. See Adeleye, B. N., Gershon, O., Ogundipe, A., Owolabi, O., Ogunrinola, I., and Adediran, O. (2020). “Comparative Investigation of the Growth-Poverty-Inequality Trilemma in Sub-Saharan Africa and Latin America and Caribbean Countries”. Heliyon 6(2020) e05631 doi.org/10.1016/j.heliyon.2020.e05631

[@zbigniewm4712]

Hello, I am very grateful for your great work. Before I start using GMM technique, I just want to test for endogeneity after having used Panels Corrected Standard errors (PCSEs). By endogeneity I mean the situation in which an explanatory variable is correlated with the error term. How can I test for endogeneity after having used Panels Corrected Standard errors (PCSEs) in STATA? I could not find any clue witrh regard to this topic. In generall, what post-estimation diagnostics tests am I supposed to do after the PCSE? Preferably in the STATA software package. Professor, I would be grateful for any guidance.

[@CrunchEconometrix]

I have no idea about PSCE. You may seek other online resources.

[@ECONOMICS-LECTURER89]

Thanks

[@CrunchEconometrix]

You're welcome!🙏

[@Harviemoore99]

Thank you so much for sharing. This video was extremely useful for me :)

[@CrunchEconometrix]

Glad it was helpful, Harvie!

[@ricardoperkasa3956]

Hi, I have a question. What does it mean if I fail to reject the null hypothesis of AR(1) after we run a dynamic GMM analysis? I also fail to reject the AR(2). Can I still go with the dynamic model?

[@CrunchEconometrix]

Kindly watch the rest videos. I emphasize the importance of the AR(2)and Hansen stats.

[@ricardoperkasa3956]

@@CrunchEconometrix thank you very much. Your video helps a lot

[@jcperez376]

Hi. Thank you for the video. Quick question, what model or estimator should I use if my panel data has small N? Or the T is greater than N?

[@CrunchEconometrix]

Hi, JC use any Panel ARDL technique (MG, PMG, DFE). Watch my videos on them.

[@jcperez376]

@@CrunchEconometrix Thank you!

[@thembalethumacdonaldseti9039]

Thank you Dr for this informative video. I am on way to watch the next video.

[@CrunchEconometrix]

Glad to hear you find it helpful! 👏

[@mukham7546]

Thank you for your effort sir! Could you explain what are N and T and why N should be less than T?

[@CrunchEconometrix]

Hi Mukha, please read the articles listed at the end of the video for details on GMM. N = cross-sections. T = time dimensions.

[@KiranSingh-vf8nc]

How do I determine internal instruments and external instruments? From your other GMM videos, it seems like you have selected the lag dependent variable as your internal instrument and then the remaining variables in your regression as your external instruments. I have done the same in my thesis draft which looks at the impact of CSR (independent variable) on financial performance (dependent variable) of firms, where i use lagged financial performance and CSR as internal instruments and the usual firm controls such as Debt Ratio, Total Assets, Total Sales as my external instruments. My supervisor said that this was not correct and I am unsure of where to go with this. Is there a video you have which goes into instrumentation or any advice would be massively appreciated! P.S. when i ran my regression, it passed the Sargan and Hansen tests, as well as the autocorrelation tests.

[@CrunchEconometrix]

Kiran, I suggest you read Roodman (2009, 2014) for in depth guide. Thanks.

[@KiranSingh-vf8nc]

@@CrunchEconometrix thank you so much!

[@abujad4226]

Thank you for the helpful video 👍🏻👍🏻👍🏻👍🏻

[@CrunchEconometrix]

You are welcome, Abu! 🙏🥰

[@clivemairura6191]

simplified presentation. great

[@wendyyembe5360]

Hi, your videos have helped me a great deal... thanks very much. Please I’ve been having serious issues analyzing panel data. I wish you could be of help please.

[@CrunchEconometrix]

Hi girl, thanks for the kind words on my videos, deeply appreciated. Sure, I'll do my best to assist anyone though not personally because that'll wear me out considering my own personal schedule and time constraints. But if you can follow my videos and practice what I teach, I'm positive you'll do just fine. I don't have all the answers because I'm still learning too. But whichever area I can guide you, I will. Thanks.

[@sheenarehman7559]

appreciated! kindly upload the video on time series as well.

[@CrunchEconometrix]

Hi Sheena, video on panel VAR-GMM is uploaded to my Teachable paid platform cruncheconometrix.teachable.com. A one-time payment of $200 grants access to all videos published in the School in addition to access to free datasets, Stata dofiles and reference articles.

[@eldomalba9824]

Thank you very much. Your concise presentation and reference papers greatly helped me in catching up working with other colleagues in the office.

[@CrunchEconometrix]

Good to hear, Eldo!

[@swedishnaturalbeauty5839]

Dear Bosede, in this video you have discussed about the range of Hansen test but what should be the range for Sargan test? if someone run the one step. Thank you :-)

[@CrunchEconometrix]

I constrain myself to the Hansen stat for reasons given in the video. Thanks.

[@swedishnaturalbeauty5839]

@@CrunchEconometrix thank you.

[@wendyspear]

From Oklahoma, USA. Great video! Thank you for uploading.

[@CrunchEconometrix]

Thanks for the encouraging feedback, Jack. Deeply appreciated!🙏

[@adiamirudin430]

I like this better than indians teacher, the pronunciation are so good!

[@CrunchEconometrix]

Thanks, Adi for the encouraging feedback. Deeply appreciated!..and Indian teachers are extremely good too! 🙏 ❤️

[@sabiryobo493]

Hello from France and thanks a lot for the video and your work. I want to know if we don't need to test for unit roots if we want to use this estimator.

[@CrunchEconometrix]

Hi Sabir, unit root test not required.

[@muhammedaydn1885]

Hello dear Professor, thanks for your videos on GMM, it helps a lot, but I also would like to ask that can we apply GMM model to time series data?

[@CrunchEconometrix]

Yes, its applicable. There are some Stata syntax to that (use the Help file) but I have never done that approach before. You may also seek other online resources.

[@ndouniamaonionguivanbrenta8618]

Please Dear Professor, how should I estimate both a Var Panel while introducing both GMM? I'm a PhD Student et thanks your answer!

[@CrunchEconometrix]

Hi Ndouniama, video on PVAR-GMM is available on my Teachable paid platform cruncheconometrix.teachable.com

[@ndouniamaonionguivanbrenta8618]

@@CrunchEconometrix thanks Sir but the link does not work, what to do?

[@CrunchEconometrix]

@@ndouniamaonionguivanbrenta8618 Link corrected.

[@ndouniamaonionguivanbrenta8618]

@@CrunchEconometrix yes Sir et thanks!

[@ndouniamaonionguivanbrenta8618]

@@CrunchEconometrix i'm working where N

[@tallyskalynkafeldens1753]

One of my favorite youtube videos! Thanks Dr. Adeleye!

[@CrunchEconometrix]

Thanks so much for your encouraging words, Tallys! 🥰🙏💖

[@jonathantembo9079]

Awesome , Can you do a video where you apply both differenced and system GMM

[@CrunchEconometrix]

Thanks Jonathan, yes that's part of the topics slated as you saw the outlined tutorials. Please be patient a bit, I'll definitely get to it. I'll appreciate if you can share this with your academic community and colleagues too. They need to know! 💕 😊

[@asanteka.2403]

Prof, thanks very much , I'm coming once more to the SGMM technique. I have a question (which you addressed but still have some doubts). I have have a Hansen of 1. When i used the collpase option as you adviced, the p-value still remains 1. I have changed both the external and internal instruments but nothing changes. So , I was wondering how can i Justify a Hansen's P-value of 1 (during a presentation).

[@CrunchEconometrix]

Asante, you can't if someone on the panel knows about GMM. You may need to change your regressors and run several simulations.

[@asanteka.2403]

@@CrunchEconometrix thanks my beloved professor

[@prashantgupta3123]

What is unobserved panel heterogenity?

[@CrunchEconometrix]

They are the fixed effects.

[@danielchan8765]

Awesome sharing! Thanks for the incredible instruction. May I ask what does External instruments and Internal instruments mean in 5:04? How do I determine which should use be used when running STATA?

[@CrunchEconometrix]

Hi Daniel, thanks for the encouraging feedback. I explained what they mean in the video. External instruments are the iv() and internal instruments are the gmm(). You decide the categorization based on theory and intuition.

[@danielchan8765]

@@CrunchEconometrix Thanks for your prompt reply! looking forward to your future videos :)

[@noahspencer9188]

Great video! Are there any assumptions necessary for using a GMM estimator that cannot be empirically tested? (Are there any assumptions that would require a qualitative argument?)

[@CrunchEconometrix]

Hi Noah, honestly not to my knowledge...and thanks for the positive feedback. Deeply appreciated!

[@noahspencer9188]

@@CrunchEconometrix Thank you! This is good news haha

[@liliu7236]

She was reading the slides, and difficult to understand.

[@CrunchEconometrix]

Who was reading the slides?

[@enkii82]

Can you do a dynamic panel with IV estimation?

[@CrunchEconometrix]

Sure. There are papers online with that approach.

[@yogeshmalhotra9120]

Great Video, and thanks for sharing the references along with the lecture.

[@CrunchEconometrix]

Glad you enjoyed it, Yogesh!

[@pedrocolangelo5844]

Another great video! Thank you for uploading it!

[@CrunchEconometrix]

Thanks, Pedro. Glad to hear it's helping!

[@horveysenyosylvester4285]

Hello Prof. Thanks for this insight. Please can one use GMM to estimate panel data without including the lag of the DV?

[@CrunchEconometrix]

Thanks for the encouraging feedback, Horvey. Deeply appreciated! GMM is a dynamic estimator which require the inclusion of the lagged depvar.

[@horveysenyosylvester4285]

@@CrunchEconometrix Thanks Prof

[@danfirth3017]

great explanation, big help thanks!

[@CrunchEconometrix]

U're welcome, Dan... glad you found it helpful! 💝

[@rikokensha5501]

Thank you, very helping...

[@CrunchEconometrix]

U're welcome Riko......may I know from where you (location) are reaching me?

[@zeenatzia6152]

Dear professor, I've studied some papers they have used GMM even if their no. of cross sections are less than time period, can you explain that why it is so? It'll be really helpful for me. Thanks for sharing your knowledge with us❤️

[@CrunchEconometrix]

Hi Zeenat, I refrain from commenting on what others do. I will only do my best to educate and teach the appropriate techniques. Kindly go through the references indicated at the end of my GMM videos on the nitty-gritty of the GMM technique. Kind regards.

[@zeenatzia6152]

@@CrunchEconometrix thank you professor

[@razmohammad423]

Which software used for this model?

[@CrunchEconometrix]

Hi Raz, software is ALWAYS indicated in the first line of the video description.

[@hassaanahmad4770]

thank You Prof.. waiting for next lecture......

[@CrunchEconometrix]

U're welcome, Hassaan! Please share with your friends and students too! 💕 😊

[@ivancabanillas3486]

Thanks a lot!!! Now I can see some important details that I could´t notice before.

[@CrunchEconometrix]

Hi Ivan, I'm glad to hear that you find this video helpful😊

[@jingma603]

Dear Professor Adeleye, I have three questions, will be very appreciate if you can help me. 1. Can I use dummy dependent variables in System GMM estimation? If not, what kind of other method would you suggest? 2. Why we must include year dummy variables in GMM model? 3. Another question related to panel data OLS, if I do the regression using Dynamic GLS , but all variables except the lagged independent variable are insignificant, what could be the reasons? Thanks Best Jing

[@CrunchEconometrix]

Hi Jing, (1) you can't use dv as depvar because yu have to take its lag as explvar. Not sure of the appropriate estimator at the moment; (2) watch my video on year dummies in the GMM series; (3) not familiar with dynamic GLS. Never had cause to use it. Hope these are helpful, thanks.

[@jingma603]

@@CrunchEconometrix Dear Professor Adeleye, Thanks for the answer. Maybe another question , how can I specify the model if I want to use system GMM? Maybe just use the model specified by a simple pool OLS? Thanks! Jing

[@CrunchEconometrix]

@@jingma603 I'll refer you to any published paper that used GMM. You'll see the way the model is specified and explained.

[@ishaqahmedmohammed5607]

Hello, Dr Thank you for your guidance. how do I interpret or explain what this Dynamic model means? lnY_it=ɸlnY_(it-1)+γ_it^(z^' )+βχ^'+ⅆ_t+ε_it

[@CrunchEconometrix]

If you specify a GMM model, ndly follow interpretation as given in these videos. Thanks.

[@diegopenaranda6159]

I have been following your videos for about two years, and every new subject I discover in your channel is impeccable. Keep up the good work, Professor Adeleye! Greetings from Bolivia.

[@CrunchEconometrix]

A million likes for your encouraging feedback, Diego. Much love to Bolivians from Nigeria!

[@ukuk9162]

long time don't see your video thank's for you effort

[@CrunchEconometrix]

Thanks pal, working behind the scenes. Will upload soon😄

[@kseniaromanova7937]

This is amazing!!!!! Thank you very much!!!!

[@CrunchEconometrix]

You're very welcome, Ksenia!

[@abwayman]

Minute 11.27 AR1 not necessarily to be rejected especially when you do Difference GMM. Differenced values would always correlated with first order error term. Failure to reject AR2 test is a must.

[@CrunchEconometrix]

Very true, Ahmad, failure to reject AR(2) more important which I emphasised. Thanks for watching, kindly share with others too! 💕 😊

[@caosang8079]

Hi! so it's actually fine to accept the null hypothesis of no first-order serial correlation, isn't it? And what about system GMM?

[@abwayman]

@@caosang8079 null hypothesis of AR2 must not be rejected to indicate no serial correlation of the second order. This is an important condition to make GMM (system or difference) estimators consistent.

[@caosang8079]

@@abwayman I understand that part about AR(2). But what I'm concerned about is AR(1). Is it fine to accept no serial correlation in AR(1) because I got the insignificant result regarding AR(1) (i.e. p-value > 0.05)

[@abwayman]

@@caosang8079 oh yes, if your ar1 is not significant, that is what we wanted actually. The issue is if it's significant. But significant ar1 is fine too, for the reason i mentioned in my first comment. Ar2 though must not significant.

[@discountchocolate4577]

This video is extremely helpful! My advisor and committee suggested I use Arellano-Bond and/or GMM but I wasn't very familiar with any version of the technique.

[@CrunchEconometrix]

Thanks for the encouraging feedback, Dark Choco. Deeply appreciated! Please may I know from where (location) you are reaching me?

[@discountchocolate4577]

@@CrunchEconometrix I'm in the US. I don't feel comfortable disclosing more specific geographic details.

[@CrunchEconometrix]

I don't need specifics. Just to know the reach of my Channel. No big deal.