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| Robert F. Phillips |
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| ''The equivalence of two-step first difference and forward orthogonal deviations GMM'' |
| ( 2020, Vol. 40 No.4 ) |
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| Generalized method of moments (GMM) estimation of a dynamic panel data model often relies on transforming the data. This note provides a necessary and sufficient condition on the instruments for two-step GMM based on differencing to be equivalent to two-step GMM based on forward orthogonal deviations. The same condition is necessary and sufficient for system GMM, based on differencing, to be equal to system GMM using forward orthogonal deviations.
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| Keywords: first-difference GMM, fixed effects, forward orthogonal demeaning, forward orthogonal deviations, system GMM |
JEL: C2 - Single Equation Models; Single Variables: General
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| Manuscript Received : Aug 10 2020 | | Manuscript Accepted : Oct 23 2020 |
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