Hello,

I am running a one step difference GMM dynamic panel model on stata using xtabond2.

I am trying to predict the change in advances given by bank by using bank-specific and macro economic independent variables.

I use the following code:

Code:
xtabond2 adv_ratio l1.adv_ratio log_ta npa_ratio roa gdp rir inflation i.year, gmm(l.adv_ratio, collapse) iv(l1.log_ta l1.npa_ratio l1.roa l1.depratio l1.gdp l1.rir l.inflation i.year) noleveleq nodiffsargan robust orthogonal small
When I use this code 2 of my macroeconomic variables are omitted due to collinearity. However, when I remove the year dummy as independent variable it gives my results which make sense. I wanted to know if it is feasible to remove year dummy as independent variable but use it as my instrumental variable.

My code which makes sense:

Code:
xtabond2 adv_ratio l1.adv_ratio log_ta npa_ratio roa gdp rir inflation, gmm(l.adv_ratio, collapse) iv(l1.log_ta l1.npa_ratio l1.roa l1.depratio l1.gdp l1.rir l.inflation i.year) noleveleq nodiffsargan robust orthogonal small
Thanks