Hello to everyone, I am searching in terms of the effect of the uncertainty on the saving and in one part of my robustness check I want to do a Xtabond2 . I read the construction of doing xtabond2 from David Roodman . but I become confused. I have a panel data from 1996 to 2017. and :
saving (i,t)= b0+b1saving (i,t-1)+b2 uncertainty (i,t-1)+ b3 X(i,t-1) +vt + vi+ e(i,t)
and x(i,t-1) is a vector of controls, which in the baseline model includes only human capital and per capita income.
in the Xtabond2 I want to address a solution to the possible endogeneity problem between economic uncertainty and the saving by instrumenting them with suitable lagged variables. To obtain efficient findings in the System GMM estimations, I need evidence for the validity of the first-order autocorrelation in the residuals, but second-order autocorrelation must be rejected. Then We run the Sargan test to avoid possible over-identification problems.
the more I read the more I become confused to how to do this.
Thank you very much in advance.
Regards,
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