Further Results on The  Weak Instruments Problem of the System  GMM  Estimator in Dynamic Panel Data Models

29 Pages Posted: 2 Jun 2020

See all articles by Kazuhiko Hayakawa

Kazuhiko Hayakawa

Hiroshima University

Meng Qi

Hiroshima University

Date Written: April 2020

Abstract

In this paper, we investigate the weak instruments problem of the generalized method of moments (GMM) estimator for dynamic panel data models. Specifically, we complement Bun and Windmeijer (2010) by considering the alternative first‐difference and level models transformed by the forward GLS transformation. We demonstrate that this transformation yields a higher concentration parameter compared with the original models. This indicates that the proposed transformation yields stronger instruments even though the instruments used are identical. The Monte Carlo simulation results show that the system GMM estimator for the transformed model, called the forward system GMM estimator, performs better than the conventional system GMM estimator.

Suggested Citation

Hayakawa, Kazuhiko and Qi, Meng, Further Results on The  Weak Instruments Problem of the System  GMM  Estimator in Dynamic Panel Data Models (April 2020). Oxford Bulletin of Economics and Statistics, Vol. 82, Issue 2, pp. 453-481, 2020, Available at SSRN: https://ssrn.com/abstract=3615249 or http://dx.doi.org/10.1111/obes.12336

Kazuhiko Hayakawa (Contact Author)

Hiroshima University ( email )

Japan

Meng Qi

Hiroshima University ( email )

739-0046
Japan

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