I am trying to estimate a model using first difference GMM estimator with the
xtabond2 command and I was trying to understand whether my logic was consistent.
I have a panel of 130 countries and 18 years. My model looks something like this
Where z and q are two interacted variables and X are the other controls.
Given the potential endogeneity of the autoregressive parameter and the z and q variables I am estimating this via Roodman (2009)
xtabond2 command, but I am not sure if I am instrumenting properly my interacted variable.
the code looks something like this. Please do note that in the
STATA sintax I also add year fixed effects.
xtabond2 y l.y z##q x i.Year, /// gmm(y l.y z#q q z x, lag(2 .) collapse) iv(i.Year) noleveleq small noconstant robust
What I am not sure about is how I should instrument my interacted term. Am I correct to think that I should also instrument -
gmm() - the interacted (
z#q) term? the idea is that z#q might be endogenous to y, hence I think I need separate instrument for it.
Moreover when I use the
## operator in
xtabond2 STATA issues an error message stating:
factor variables may not contain noninteger values
So I am not sure how to go about this problem: do I need to create a separate variable with the interaction and include that separately or there is another way of going about this?
I thank you in advance for your reply