What are the reasons to use Arellano-Bond's difference GMM instead of system GMM?
Reasons to apply a system GMM estimator:
If the endogenous variable is very persistent or almost follows a random walk, then the approach of Arellano-Bond's difference GMM is poorly suited. In this case, the delayed levels are only weakly correlated with / weak instruments for the first differences of the variables. Then, often the system GMM estimator of Blundell and Bond (1998) is better suited. System GMM augments difference GMM by estimating simultaneously in differences and levels
Reasons to apply a difference GMM estimator:
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Now, I am looking for the reasons to apply a difference GMM instead of a system GMM. To me, the argumentation in literature sounds like system GMM is always superior compared to difference GMM because it exploits differences and levels simultaneously. Is there any case where a difference GMM should be preferred over a system GMM? And why?
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